The current COVID-19 crisis has brought many industries to a standstill. However, there are some which have flourished beyond belief. One such industry is the U.S. gaming sector. Due to the lockdown, people are confined to their homes, modes of entertainment are limited and they are indulging in gaming more than ever.
According to a recent report by the NPD group, consumer spending on gaming in the U.S climbed up to a record $11.6 billion in the April-June quarter, a 30% year-on-year (YoY) increase. The increase has been witnessed by improved demand across physical content, PC content, digital console as well as mobile and subscription verticals. Not just the hardware but also the sales of video gaming accessories saw an impressive growth.
Impressive performance at the stock market
VanEck Vectors Video Gaming and eSports ETF (NASDAQ: ESPO), which includes the top video games stocks has outperformed the broader S&P 500 index. As of June 16, the ETF generated total returns of 55.1% for the past 12 months, as against 10.2% by S&P 500.
The companies that stand to benefit the most from the bull run in the gaming industry are Take-Two Interactive (NASDAQ: TTWO), Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA) as well as OTC stocks like Tencent Holdings (OTC: TCTZF) and Capcom (OTC: CCOEF).
Take-Two Interactive surged 34% YTD, while Activision Blizzard soared 44% from January till date. At the same time, Electronic Arts has gained 33% year-to-date.
The gaming market in the US has evolved over time. At present, one can invest in gaming through three main means such as video games, eSports Teams or gaming infrastructure companies.
The viewership pattern has also changed. Now it is not just the people playing the video games, but also the audience watching others play the game as a form of digital entertainment.
Challenges in the gaming industry amid the COVID-19 pandemic
However, the challenge here is that these companies wouldn’t be able to promote their consoles at various social events owing to the new normal. Therefore, gamers wouldn’t get the first-hand look and feel of the products as they used to.
Eric Lempel, SVP and head of global marketing at Sony Interactive Entertainment (NYSE: SNE), stated, “The challenge, early on, became how do we try to express this with a spot, and at the same time, how do we create a spot given the current limitations presented by the global pandemic?”
Another possible roadblock that the gaming industry might face is the ban on Chinese apps by the Trump administration. A ban has already been announced on TikTok and WeChat for security reasons and it remains to be seen if President Trump extends these bans to Chinese gaming apps as well.
The ban on the Tencent-owned WeChat could also impact the gaming industry. Tencent owns a plethora of game companies in the U.S. including Riot Games, Funcom, and Sharkmob. The Chinese company has partial or full ownership stake of many renowned gaming companies. Tencent has more than 80% stake in Grinding Gear Games and Supercell, as well as 40% stake in Epic Games. The company also has a 5% stake in Activision Blizzard.
The gaming industry is here to stay and prosper
According to market researcher, Newzoo, the video game industry is likely to expand 9.3% in 2020 to reach $159.3 billion. It has been observed that the inclination towards interactive gaming is more in the recent times.
Besides the lockdown-induced benefits, latest advancements in graphics technology and the upcoming release of consoles from Microsoft and Sony, will boost the growth in gaming industry.
The sector did see a mild slowdown as the economy started re-opening in a few states. However, increased COVID-19 cases as well as hospitalizations compelled the Trump administration to alter its stance.
The lockdown is being re-imposed and social distancing is the current norm. Due to the lingering effect of the COVID-19 pandemic and social-distancing norms, the gaming industry is set to flourish in the long-term.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
