Will Amazon’s gaming ambitions boost its share price?

With the launch of its first original, big-budget video game, Amazon [AMZN] has added a new string to its bow. Will its share price level up as a result?

Breaking into yet another vertical, on 20 May Amazon launched Crucible, its first big-budget video game. Its share price rose 2% throughout that day.

The game is a free-to-download, first-person shooter format from Amazon Game Studios, and is a bet from the tech giant that it can take a slice of the $159bn global gaming industry and provide further share price progress.  

Reinforcing its seriousness about the segment, Amazon is also planning to deliver its second game, New World, in August. There are also plans to launch a Lord of the Rings game at a later date — Amazon acquired global rights to Lord of the Rings for a reported $250m in 2017, and is also set to launch a TV series based on the novel next year, produced by Amazon Studios and distributed via its Prime Video platform. A boon for Amazon’s share price investors then?

Amazon’s gaming efforts have delivered some false starts in the past, however, and the pickup numbers for Crucible, which are lacklustre so far, suggests this may be happening again. Gaming analysis firm SteamCharts reports that the game saw an all-time peak of 10,600 players at launch, a number which has fallen to 4,400 by 26 May, according to Forbes writer Paul Tassi.

Matching the downward momentum, Amazon’s share price has also fallen by 1.7% from Crucible’s launch date to close on 4 June. So, will Amazon’s gaming ventures deliver share price prosperity in coming years, or will this be a flop?

The potential in gaming

Despite a slow start, the move has many analysts and investors excited because the gaming space as a whole has major potential — even if Amazon’s first game is not a big hit.

The cloud gaming segment, in particular, is getting investors excited, projected to grow at 59% between 2019-2024 to be worth over $3.1bn. This is positive for Amazon, as it means it can bypass traditional console businesses like Nintendo if it invests properly. The game streaming market, which Amazon has a stake in via Twitch, is expected to register compound annual growth of 9% from 2020-2025.

Amazon’s investment in a big-budget game shows that it is a company that reinvests in itself to achieve long-term goals and grow profits, says InvestorPlace writer Louis Navellier. “That’s exactly what Amazon is doing with its gaming division.”

“Amazon Game Studios is still finding its way,” Susan Eustis, president of Wintergreen Research, told Bloomberg in May. But one hit game could offer huge lift and Amazon's 150 million paid Prime members globally could create a particular market advantage, she told the publisher.

False starts

Many commentators are less optimistic about the move, however, taking cues from Amazon’s past ventures in the gaming space.

While Crucible is the first big-budget gaming title Amazon has launched, a wave of minor games launched in the past have made very little impact. Motley Fool writer Stephen Lovely says these minor exploits, such as Airport Mania, Lucky’s Escape, To-Fu Fury and The Grand Tour Game were “small-time efforts” made for casual platforms.

In 2018, Amazon even cancelled its biggest game in development at the time — Breakaway — after two years of work.

“Amazon Game Studios is a very strange operation, having existed for years, recruiting top tier talent for…what, exactly? They’ve failed to produce much of anything, and even when they have and the product is decent, it fails to make a mark, like we’re seeing with Crucible now,” Tassi says.

“Amazon Game Studios is a very strange operation, having existed for years, recruiting top tier talent for…what, exactly? They’ve failed to produce much of anything, and even when they have and the product is decent, it fails to make a mark, like we’re seeing with Crucible now” - Forbes writer Paul Tassi

What the analysts say

For now, analysts tracking Amazon’s share price are divided between those that are sceptical about Amazon’s latest launch, and those that have high hopes for the future. It’s an area that needs more development in order to produce a consistent and meaningful impact on the firm’s share price.

David Cole, founder and CEO of research firm DFC Intelligence recently told CNN Business that he believes Amazon is taking so long to develop these projects it makes them seem dated once they come out.

"These companies are like huge oil tankers that cannot exactly turn on a dime. They make a decision, it takes years to execute, and by the time the product comes out, the market has totally changed direction,” he says.

“These companies are like huge oil tankers that cannot exactly turn on a dime. They make a decision, it takes years to execute, and by the time the product comes out, the market has totally changed direction” - David Cole, founder and CEO of research firm DFC Intelligence

"Both Crucible and the upcoming New World, which got delayed again, are high-quality titles for three or four years ago.”

Elsewhere, Wedbush analyst Michael Pachter told CNBC: “Games is a hard business, so it makes sense that it takes a while to develop a hit and [it] makes sense that they will tweak their model and headcount as they evolve.”

He continues: “If they can’t compete with Crucible, they’ll try with New World. If that doesn’t work, they’ll try again.”