What Parts of the Gaming Industry Look Attractive to Investors?
Gaming has become one of the primary forms of entertainment for large parts of the population, particularly younger adults. It’s easy to see why. There are now more games and ways to play than ever before. The casino space is a great example of this. The industry has gone from offering a handful of different options in large buildings to serving up thousands of titles to players just about anywhere in the world. While this huge spectrum of choice and a great deal of convenience helps online casinos to appeal to many players, many of these brands also offer bonuses and other promotions to attract even more new customers.
Of course, online casinos aren’t the only area of gaming that has become popular in recent years. Just about every genre and format has seen a boost of new players take up the hobby, particularly as mobile and online gaming has improved accessibility.
The demographic of young adults that has fallen in love with gaming is also the same one that has taken a keen interest in investing in the stock market. These retail investors have often been putting money into the companies that they use and like the most, which is why we’ve seen stocks like Tesla going to the moon.
It’s no surprise, then, that gaming companies have been on the radar of many investors, particularly with the famous meme stock GameStop. Of course, this traditional video game retailer was not being traded on its fundamentals, but rather as part of a collective attempt to perform a short squeeze and a good old-fashioned mania.
That doesn’t mean the gaming industry doesn’t offer some attractive investment opportunities for those who are looking to gain some exposure to the sector. But the market is not homogeneous. There are dozens of categories of companies, all performing their own important functions. Here are some key ones that could be of interest to some investors.
Video game publishers are often some of the best-known brands in the business. This is because their names end up front and center in the game, such as Electronic Arts’ EA Sports logo, which appears prominently in Madden and FIFA games.
Publishers are the businesses that take a finished video game, package it, sell it to retailers and consumers, and then promote it. In the past, they were separate from development companies (the ones that make games). However, you’re now more likely to find that major publishers also own a portfolio of development studios.
Electronic Arts, Take-Two, and Ubisoft are three of the most well-known publicly-traded publishing companies. For the most part, they are consistently profitable and appear to have room to grow.
Not all of them pay dividends though, which will dissuade some investors. Additionally, these companies are heavily reliant on their content being hits among players. While most have strong portfolios that can handle the odd flop here and there, a string of bad releases could be enough to destroy a publisher.
In the world of computing, there has been a common consensus for many years now that the money is in the software and not the hardware. That said, there is still a need for hardware as, without it, there’d be no way to run any software.
On top of that, having a strong position in the hardware market can allow you to grow your software business.
That is most certainly the case for both Sony and Microsoft, who have carved out large portions of the console market for themselves. The duopoly of companies are believed to sell their consoles at a loss in the early phases of their life cycle as a way to build market share. They still make money though. Both have large portfolios of games under their umbrellas and generate revenue through the sale of subscriptions to their online services.
Companies that can augment their offering in this way tend to be very profitable and have loyal customers, but you’ll need to verify this for the company you plan to buy before you invest.