Gaming Market Update: H1 2021 in Review

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After a grand 2020, the gaming landscape continues to show its strength to investors in the wake of ongoing user interest and growth in mobile availability.

There’s no doubt that gaming received a massive intake of new players and a boost in average spending thanks to the effects of stay-at-home orders across the world due to COVID-19.

While the pandemic is by no means over, the restrictions preventing populations in North America from spending their time and money outside the home have relented. Even so, recent financial results across the board show that the enthusiasm for gaming isn’t going anywhere just yet.

Here the Investing News Network (INN) gives a comprehensive recap of the gaming investment market in 2021 so far with views from experts in this space.

Gaming market update: Worries about slower growth met with glowing results

While the success of 2020 has led many new investors to the gaming market, some market watchers have projected that this momentum won’t be sustainable as people get back outside.

But one investment executive told INN he expects the gaming industry to continue firing on all cylinders, with mobile availability and revenue expanding across the board.

“I think a lot of people are underestimating a lot of the major trends that are taking place in gaming,” Raj Lala, president and CEO of Evolve Funds Group, told INN.

Evolve manages the Evolve E-Gaming Index ETF (TSX:HERO), which enjoyed a massive jump in value thanks to the momentum that gaming experienced in 2020. At the end of June, the fund was up 6.95 percent over a year-to-date period, sitting at a price of C$39.57.

The arrival of a new generation of hardware for gamers has certainly helped add interest and sales in markets across the world.

The new PlayStation 5 and Xbox Series X|S consoles from Sony (NYSE:SONY) and Microsoft (NASDAQ:MSFT), respectively, have heightened demand from consumers.

In July, Sony announced that it had sold 10 million units of its new console across the world. Meanwhile, as part of its latest quarterly report, Microsoft praised the performance of its Xbox division.

Microsoft’s total gaming revenue increased by 11 percent during its fiscal Q4 2021 period, while Xbox hardware revenue alone jumped by 172 percent thanks to the new consoles.

Not to be outdone, Nintendo (OTC Pink:NTDOF,TSE:7974) reported its most profitable fiscal year ever in May. The Nintendo Switch game console sold 28.8 million units during this period, while software sales went up by 36.8 percent. The fiscal year for the Japanese gamer maker ended on March 31, 2021.

A report from GamesIndustry.Biz indicates that the first half of 2021 brought a 4 percent uptick in console sales in Europe, the Middle East, Africa, Australia and parts of Asia, with 2.7 million units sold, thanks mostly to the new launches.

“Our view is that 2021 will be just as strong … it will be a growth year on top of the strength that we saw in 2020,” Darcy Taylor, founder and CEO of LEAF Mobile (TSX:LEAF,OTCQB:LEMLF), told INN when asked about a potential slowdown in 2021.

For Lala, the segment with the highest upside in 2021 is mobile gaming.

Gaming market update: Console shortages affect availability of new machines

While the numbers for new consoles don’t lie, the ongoing scarcity of these items has proven to be a tough pill to swallow for those in the gaming space.

And it’s not only consoles that are facing shortages — the premium computer parts needed to assemble high-end gaming computers are also hard to find as supply can’t keep up with demand.

Today consumers can’t walk into their local retailers and grab the latest hardware available, and that’s not because of stay-at-home mandates.

Early adopters are part of the problem, with new products facing major demand from fans, and the increased presence of scalpers has also played a role. However, the main issue comes from the pressures COVID-19 has placed on the production of graphics cards for the gaming industry.

The consumer chaos can be traced back to the manufacturing of semiconductors, a key component of these much-desired graphic cards. One of the side effects of the pandemic has been limitations on the factories manufacturing semiconductors, and that has created production bottlenecks as demanding operators push to get their hands on components.

In April, Taiwanese electronics manufacturer Foxconn Technology Group (TPE:2354) said it expects to see the shortage continue well into 2022.

When asked if the current dearth of consoles and computer components could affect the overall health of the gaming market in the long term, John Patrick Lee, exchange-traded fund product manager at investment firm VanEck, said the demand is so strong at the moment that it will not abate.

“It’s hard to get visibility on what the long-term solution is going to be,” Lee told INN. “But for the next year, for the foreseeable future, I think there’s still a ton of demand.”

The issue has grown to the point of involving US President Joe Biden. In February, Biden signed an executive order asking to get to the bottom of the issue.

A report from Fortune indicates that while Asian countries like Taiwan, South Korea, Singapore and China have invested heavily in the manufacturing of semiconductors, the US is sorely lacking in that department. The market will continue to be tested on this front, as computer game moguls Valve and Nintendo are set to launch new hardware in 2021.

There’s likely no easy fix in sight for the shortage of next-generation consoles and gaming computers.

Gaming market update: Mobile fuels investor appetite for gaming gains

Despite all the disruptions present for console and computer gaming, experts remain bullish on the overall sector because of the upside present in mobile gaming.

Like its counterparts, mobile gaming enjoyed gains throughout 2020. “I mean, it has absolutely exploded,” LEAF Mobile’s Taylor told INN.

According to a report from Business of Apps, in 2020 games represented 71 percent of total app revenue across the smartphone storefront platforms for Apple (NASDAQ:AAPL) and Google.

“Mobile gaming is a very, very powerful growth engine for the video gaming industry as a whole,” Lee told INN. “Mobile is just this bright spot in the video game ecosystem.”

VanEck examines the gaming market by way of its fund, the VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO). At the end of June, the fund was up 3.49 percent year-to-date at US$72.58.

In total, gaming brought in nearly US$80 billion in revenue during 2020, according to the data from Business of Apps, and the mobile version of PlayerUnknown’s Battlegrounds, which is owned by BLUEHOLE Games, secured the top spot for app earnings. Video game mogul company Tencent Holdings (OTC Pink:TCTZF,HKEX:0700) owns a stake in BLUEHOLE Games.

“The amount of time sitting in front of your television or your monitor with a console is going to decrease as the world reopens,” said Lala. “The one thing that we carry with us everywhere is our cellphones.”

Experts see the rise of 5G networks as an encouraging sign for more refined game playing.

Taylor told INN that the advent of a stronger presence for 5G connectivity means gamers can get experiences on par with the console and computer gaming market.

That said, the rollout of 5G network capabilities has proven to be difficult as availability for users has not become as prevalent as is needed.

Gaming market update: Investor takeaway

At a time when every single media company on the planet is fighting for the limited attention spans of consumers, it’s clear gaming has latched onto a way to create steady revenue.

Despite the current demand challenges, gaming continues to provide strong results on the top end, incentivizing a closer examination of the entire market by investors.

Taylor told INN the banner year seen in 2020 has reset the baseline for the gaming market’s performance. Investors may be witnessing that reset in real time as gaming continues to impress and attract the attention of the capital markets.

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Securities Disclosure: I, Bryan Mc Govern hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: LEAF Mobile is a client of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.