The stock market is increasing recognising that the major video game publishers have morphed from “hit driven” business models around AAA game releases, to companies that have been able to build more sustainable franchises via steady gamer engagement through the product cycle. Digitisation of the gaming industry has allowed publishers to prolong the popularity of their games by creating ‘network effects’ around key titles (i.e. think Massively Multiplayer Online, where gamers connect and play each other online). Further, digital in game purchases such as expansion packs has allowed publishers to smooth the monetisation profiles of their titles.
Interestingly this transformation in the gaming companies was evident in the share price performance of many of the major gaming companies through the recent results season. Activision Blizzard (+45bps), Take Two Interactive and EA Sports (+53bps) all announced fairly major delays to upcoming franchise game releases, however any related share price weakness was fleeting as investors quickly focused on improving profitability from the extension of game franchise lifecycles (fewer games, less development costs, better cash flows), as well as the move from physical to digital sales, which allows for better margins for the publishers (essentially cutting out the retailer).
While the key gaming stocks have had strong moves of late we see move room to run. The eSports opportunity is in the “early innings” and the fastgrowing mobile gaming segment will continue to get better with improvements in smartp
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Nick is a founding Partner and the Chief Investment Officer of Munro Partners. He is responsible for the investment management of Munro’s key investment funds and the formulation and implementation of the proprietary investment process.