The video gaming investment theme has been in the spotlight recently thanks to Microsoft’s Activision Blizzard acquisition, with the deal closing 13 October. Here is a collection of stocks that could benefit from rising interest in and demand for video gaming.
- Sony’s PlayStation 5 supply chain issues seem to be resolved, with the company expecting seasonal sales to normalize.
- Nintendo filed a patent that hints that the Switch 2 could have a dual screen.
- Team17 could be cutting its workforce by one-third as part of its restructuring, according to industry reports.
The Takeover Attempt Stock
Last year, AppLovin’s [APP] $20bn offer for Unity [U] was rejected, but it could make another play for the engine maker, according to Citi analysts, who see a cash-plus-stock offer as the most likely scenario, given the “premium multiple that Unity still commands over AppLovin”. In September Unity announced a controversial new pricing plan that AppLovin CEO Adam Foroughi warned would “destroy the trust and credibility” that Unity had accumulated, and, indeed, could “tear our industry apart”. Unity quickly apologised and walked back some of the changes.
The Potential Buyout Target Stock
Electronic Arts [EA] announced in June that it was splitting its EA Games and EA Sports divisions. “We are building the future of interactive entertainment on a foundation of legendary franchises and innovative new experiences, which represents massive opportunities for growth,” CEO Andrew Wilson wrote in the announcement. The shakeup could be seen as the company readying itself for a potential takeover — Wilson has previously quashed buyout rumours, yet has hinted that he would be open to the idea. Bloomberg reported last month that EA is potentially being eyed by Disney [DIS].
The Holiday Season Stock
Sony [SONY] is hopeful that the supply chain issues that have plagued the PlayStation 5 since its launch at the end of 2020 are now resolved. Eric Lempel, Senior Vice President, and Head of Global Marketing, Sales and Business Operations, told CNBC last week that the company is on track to hit its target of 25 million sales for the year. “This holiday season is the first holiday season we will be fully stocked on PlayStation 5 in every geography,” said Lempel. Sales will likely be boosted by the recent release of Spider Man 2, which is exclusive to the console.
The Patent Stock
It has long been rumoured that the next Nintendo [NTDOY] hardware will be the Switch 2. A recently filed patent suggests that the gaming platform could feature two screens that are detachable from one another for dual play, reminiscent of the hugely popular Nintendo 3DS console that was released in 2011, according to a report by GameRant last week. However, not all Nintendo patents become reality, and it remains to be seen whether this product will hit the shelves.
The Business Restructuring Stock
In March, Team17 [TM17.L] announced, along with full-year results for 2022, that it would realign its business model in order “to meet fluctuating work demands, and the continually evolving needs of our development partners and growth in own IP”. The company implied that there would be layoffs but gave no indication as to how many. However, according to a EuroGamer report last month, that number will be 91, approximately one-third of its workforce. Sources told the publication that they have concerns about Team17’s ability to continue working on games currently under development.
Another Way to Invest in Video Games
The Roundhill Video Games ETF
Holdings of Roundhill Video Games ETF [NERD] included Nintendo, AppLovin, Electronic Arts and Team17 as of 30 October. Consoles accounted for 56.1% of the portfolio at the close of September, while digital and online gaming, and mobile and portable gaming, had weightings of 21.7% and 16%, respectively. Personal computer gaming had a 5.7% allocation. The fund was down 4.6% in the twelve months to 27 October and down 11.9% in the past six months.
The Wedbush ETFMG Video Game Tech ETF [GAMR] holds all five stocks. As of 30 June, interactive home entertainment accounted for 68% of the portfolio, while application software, interactive media and services, and storage and technology hardware all had weightings of under 5%. The fund was down 2.2% in the past year and down 14.8% in the past six months.
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