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Video games enjoy annus superbilis as lockdown entertainment booms


While for most business it has been a frankly horrible year, for the video games industry 2020 has been a bona fide breakthrough moment.

For many months of the year, people could legitimately consider themselves heroic for sitting at home on their couch.

These heroes did not wear capes. They evidently watched Netflix and played video games, protecting their loved ones all the while.

In March, Electronic Arts social media ad campaign – “Stay Home. Play Together” – was as much an instructive piece of public service as it was a promotion of the online gaming community that powers EA’s lucrative in-game monetisation model (more about that later).


It would become clear as the year progressed that EA’s marketing department was very much on the nose with its messaging.

Soaring gameplay numbers in lockdown

As financial results industry-wide were rolled out quarter after quarter they revealed soaring growth in user numbers, playtime and crucially digital-based revenue.

In November, for example, EA’s Q2 statement boasted of a “well above guidance” performance which it highlighted as being driven by ‘live services’ – ie in-game transactions – and marked a new company record for cash generation.

Net bookings were up 8%, at US$5.77bn over a trialling twelve-month period.

The ‘EA Play’ subscription service, which allows gamers to access EA’s back catalogue for £19.99 per year, now counts some 6.5mln paid subscribers.

It highlighted at the same time that Madden NFL had increased its user base by 30% year-on-year whilst FIFA 20 had seen 35mln players since its launch in late 2019 (and the 2021 version was launched in October).

Factoids stripped out of EA’s investor relations bumf is impressive though not unique across the sector.

Activision, Ubisoft and TakeTwo all level up

Similarly, Activision Blizzard in late October reported US$1.9bn of net revenue for its third quarter, up from US$1.2bn in the same three months of 2019.

The Activision unit, which houses the massive Call of Duty franchise, counted 111mln monthly unique users (MAUs) in the quarter – that’s three times as many as the comparative for 2019. Counted in hours played, player engagement was up seven times.

On the Blizzard side, which runs subscription-based online fantasy game World of Warcraft, there were 30mln MAUs and King, the Candy Crush mobile gaming subsidiary, had 249mln MAUs.

Paris headquartered Ubisoft, meanwhile, in its recent half-year results, reported 100mln ‘unique players’ – more than 65mln of which came via online shooter ‘Tom Clancy’s Rainbow Six Siege’  which, according to Ubisoft, has generated €2.5bn of cumulative consumer spending since its initial launch five years ago.

Whilst online gaming activity is up and chief executive Yves Guillemot keenly highlighted “very strong momentum” in the industry, Ubisoft’s bullish guidance was also tempered due to the delay in releasing two top-tier game titles (Far Cry 6 and Rainbow Six Quarantine) as a result of COVID-19 disruption.

TakeTwo Interactive, the parent to Grand Theft Auto maker Rockstar, reported US$841mln of net revenue for its second quarter and highlighted a 335% rise in cash generation to US$626mln over its first half.

Codemasters snapped up on final lap

In the UK, Warwickshire based Codemasters reported £80.5mln of revenue for a first half in which it launched three games – a fourth was launched more recently and it landed the exclusive rights to the World Rally Championship (WRC) until 2027.

Codemasters’ motorsport licenses are arguably its most valuable assets, not least its flagship F1 game series. Such is the attraction that TakeTwo, which as well as GTA also owns the 2K Sports business, targeted the UK firm in early November, with an offer pitched at 485p per share or £735mln.

The bid was more recently usurped in December as Electronic Arts made a premium-priced challenge, priced at 604p or £954mln.

2K Sports is EA’s closest rival in licensed sports games, which adds spice to the takeover battle.

2K’s NBA, PGA and WWE games are among very few ‘crown jewel’ licences currently not in the hands of EA Sport – it should be no surprise that the rivals are duking it out to gain control of F1.

The fact that EA has some of the best honed in-game monetisation in the sector not only gives it the extra firepower, it probably also means that the F1 and WRC licences have greater earning potential under the EA umbrella.

More tech, more games, more players

Notably, Codemasters’ F1 game was itself a highlight of Lockdown 1.0, during the spring, as real-world grand prix stars and celebrities competed in TV broadcast eSports events.

The emergence and growth of eSports is one of a number often touted ‘game-changing’ evolutions in the industry – along with mobile-gaming, cloud-based game ‘streaming’ (as deployed by Google’s lukewarm Google Stadia platform), augmented reality (AR), virtual reality (VR) and, of course, the Fortnite phenomenon with its micro-transactions and, its ‘free-to-play-but-pay-to-win’ model.

There’s the potential to say an awful lot about each item on that list. But, ultimately the most important point to make is straightforward.

Put simply, it is this: ever-larger numbers of people are playing video games across an ever-larger array of gaming technologies. And the business of gaming is booming.

The overarching trend has been building for several years and the changing landscape for entertainment during the 2020 pandemic has only accelerated it.

Big questions ahead for 2021

For investors who have seen the valuations of gaming stocks bolstered this year, one of the questions to ask will now be what happens it 2021?

  • Can the surge in user numbers and activity be sustained?
  • What are the next big gaming companies to follow?
  • Is more merger and acquisition action on its way?
  • Will anyone be able to play out in the real world ever again?

These are all questions for the New Year, and, with a high degree of certainty, we can assume that COVID statistics and vaccine programmes may prove influential on that score.

In the meantime, it appears there’s plenty to play for – on share trading accounts as well as on PCs and consoles.

Where to find video game stocks

Keywords Studios PLC (LON:KWS) is the largest of the London market’s video game companies. It is not a game developer in and of itself, rather it is a services provider to most of the major publishers.

The company, worth around £1.6bn in the market presently, provides everything from audio, visual, art, language and localisation, marketing, PR and customer service solutions under contract to the industry. Keywords is not alone in London.

Sumo Group PLC (LON:SUMO) is also in the game services and contracting business, similar to Keywords. At 268p per share, it is valued in the market at around £457mln.

Bidstack Group PLC (LON:BIDS) is an advertising technology group which enables dynamic in-game advertising campaigns to be delivered in-game (included simulated ad hoardings on sports and racing games.

Also on AIM is Team17 Group PLC (LON:TM17), a developer of ‘cult’ games such as Worms and Overcooked.  Earlier this month, announced the launch of its first game for the next-generation consoles, with Overcooked! All You Can Eat for the Xbox Series X|S and PlayStation 5. It is valued at just over £1bn.

Frontier Developments (LON:FDEV), with a market cap just shy of £0.95bn, is more focused on the PC market with series such as Elite Dangerous, Planet Coaster and Jurassic World Evolution.

New York is host to most of the top-tier game developers including Electronic Arts Inc (NASDAQ:EA).

Activision Blizzard Inc (NASDAQ:ATVI) is the company behind lucrative games franchises like Call of Duty, World of Warcraft and smartphone phenomenon Candy Crush.

Take-Two Interactive Software (NASDAQ:TTWO) is the parent of Grand Theft Auto publisher Rockstar Games and 2K Sports (which has licences for PGA Golf, the NBA and WWE pro wrestling).

Meanwhile, Assassins Creed and Watch Dogs publisher Ubisoft (EPA:UBI) has a listing in France.

In Asia, there’s Japan’s Nintendo Co (TYO:7974) and Final Fantasy creator Square Enix Holdings (TYO:9684).

Chinese tech conglomerate Tencent (HKD:0700) is among the cornerstone shareholder in America-based Fortnite publisher EPIC Games – Disney and Sony also hold shares in the private company.

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