The video gaming sector around the world is enjoying something of a renaissance as it takes its place alongside TV and film streaming as one of the go-to forms of entertainment for people currently stuck at home during the ongoing lockdown period.
Developers are already starting to notice that the pandemic is providing a boost to their businesses, with Codemasters Group Holdings PLC (LON:CDM) highlighting last week that a shift to digital sales of its products had “accelerated greatly” during the lockdown period, which in turn had pushed up its profit margins as it was spending less on costlier physical copies of its games.
Even the UK government appears to have noted that there are now a significant number of public eyeballs on video game screens, with in-game advertising technology developed by firms such as Bidstack Group PLC (LON:BIDS) to be used to display messages encouraging players to stay at home.
The sectors rising fortunes have also caught the eye of brokers, with analysts at Berenberg singling out French computer game giant Ubisoft, the maker of the Assassins Creed franchise, as one of their favourites on the longer-term positives for the industry.
“In the short term, the whole video game segment is experiencing a boost from the lockdown,” Berenberg said, adding that in the US alone video game spending was up 60% year-on-year and that an increased level of player engagement during the quarantine period was also likely to have “permanent positive effects”.
Major video game developers across the Atlantic are reaping the benefits of this upsurge, with shares in FIFA developer Electronic Arts Inc (NASDAQ:EA) up 28% in the last month while World of Warcraft and Call of Duty owner Activision Blizzard Inc (NASDAQ:ATVI) has climbed nearly 23%.
Services groups also benefit
Alongside game developers themselves, those companies providing back-end services to help get their projects over the line are also seeing an uplift in demand.
On Thursday, AIM-listed Keywords Studios PLC (LON:KWS) said a surge in video game playing as a result of the coronavirus pandemic was driving “increased demand” for its development services alongside what it said were “strong growth tailwinds” in the industry as it readied for the release of new game consoles and streaming platforms.
READ: Keywords Studios highlights ‘increased demand’ for development services as coronavirus drives surge in video gaming
Analysts at Liberum said in a note that with demand for video games surging, the company could see yet more customers as a push by developers to keep their expanded customer base happy will result in a “growing desire to outsource to large-scale, trusted partners”.
Analyst notes ‘substantial’ scope for sector expansion
Looking to the growth of the sector as a whole, Alliance Trust portfolio manager Greg Herr said the scope for an expansion of the video game sector was “substantial” as the pandemic expanded the pool of potential players.
“With new markets opening up across the world, and the proliferation of mobile devices, we believe the scope for expansion within the video gaming sector is substantial. In the current environment, with millions of people across the globe confined to their homes in the battle against [coronavirus], the scope for increasing use of video gaming is huge”, he said.
Herr added that with digitisation of games away from physical copies made it easier for developers to enhance gameplay through additional downloadable content, which he said will serve as “a strong generator of recurring revenues across the market”.
The popularity of video gaming has continued to rise despite a plateauing of other leisure activities such as TV and internet browsing, and we expect this level of consumer attention, and excitement, to continue to grow. Add to this the attractive valuations of global companies such as Ubisoft and [Chinese game developer]Tencent and exposure to this sector seems an incredibly attractive investment opportunity”, he concluded.