The video game industry is currently undergoing major changes in its transition from consoles to various digital platforms. The gaming industry has been picking up recently as a result of the rising number of Internet users. This has resulted in large gains for the industry. Goldman Sachs recently began to cover the video game industry and stated that it is "in the middle of a renaissance": global revenue is expected to hit $93.2 billion by 2019.
In particular, there are three gaming stocks that have been gaining traction this year. The first one is Activision Blizzard, Inc (NASDAQ: ATVI), maker of the popular games "Call of Duty" and "World of Warcraft." The shares of Activision Blizzard are up by 76.6% this year and the gaming giant reported about $1 billion from in-app purchases. According to Christopher Merwin from Goldman Sachs, earning from eSports are very likely to surpass those from Major League gaming and since Activision has looked into investing in eSports, this should greatly benefits the company's net earnings. Another stock which has seen year-to-date gains is Take-Two Interactive Software Inc. (NASDAQ: TTWO).
Another way to invest in the winning industry is to buy stocks in consoles, the hardware and software that control games. The three biggest console makers are Sony (NYSE: SNE), Nintendo (OTC: NTDOY) and Microsoft (NASDAQ: MSFT). Nintendo is the oldest of the three companies and it is also the only one that is solely a video game company. Nintendo is also different from the others because one can buy shares through depository receipts (vs purchasing stocks in the foreign market) and its revenue and prices are directly linked to its performance in the video game market. While depository receipts allow U.S. investors to purchase shares in a more convenient and less expensive manner, they tend to be illiquid or trade only by institutional investors.
Don't forget that console producers game revenue from game sales, which is very much tied to the job of game developers. When purchasing stocks from game developers it is important to keep in mind that share prices of developers vary based on what is in demand in the market.
However, there are still skeptics of the video game stocks. In their report, analysts at Cowen & Co. found that growth expectations for Activision, Take-Two and French game publisher Ubisoft Entertainment SA (OCTMKTS: UBSFY) are "highly unrealistic". Cowen analyst Doug Creutz believes that "the video game stocks are heading into choppy waters" and that "Implied buy-side expectations for next year suggest a level of aggregate growth that we think is highly unrealistic." Additionally, Creutz reported that as game companies are beginning to engage their audiences for longer periods of time (thus generating more revenue per game sold), consumers are becoming even more selective in the games they choose to play.
This trend narrows the number of successful games that are out on the market. As the gaming industry is currently in a state of transition it is quite reasonable for there to be disagreements in the direction that it will go. However, it is important to keep an eye out for the top video game stocks in order to best predict their future.