Games for money: what happens to the shares of the gaming companies?

The corona virus increased the demand for gaming not only among the players but also among the investors, but with the return to normality, the gates fell.

At the same time, despite the difficulty in raising funds compared to last year, the field shows consistent growth and turnovers that have left behind the global film and music industry as well

Greenberg roasts

09/29/2022

Thursday, September 29, 2022, 09:04 Updated: 09:16

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Gaming has long since overtaken both the film and music cycles (Photo: ShutterStock)

The international gaming industry has become the largest entertainment industry in the world, and its value was estimated at 214 billion dollars for 2021 (according to PWC) - more than the film industry, which is estimated at 91 billion dollars for the same year, and the music industry, which is estimated at 26 billion dollars, together.

The gaming industry grew impressively from a sum of about 6 billion dollars in 2006, mainly due to the push from the mobile industry and the corona virus and the closures that accompanied it, which sent the fans in their homes towards the screens and the various game consoles.

The growth of the field encouraged the entry of more players, and led all those who work in it to the reality of survival, in which investors withdraw from the game and the gaming stocks (companies operating in the field of computer games, network, mobile and online sports) examined by Walla Money!

Plunge by 32% on average since the beginning of the year.

The decline in the value of the shares was deeper, although the least, than the one experienced by the American Nasdaq index, which fell about 30.5% for the same period, and much less than the decline experienced by the S&P500 index since the beginning of the year - about 59%.

Shares of prominent gaming companies (photo: Walla! system, no)

Done with the corona virus

The return of the world's economies to normal, and with it the return to schools and work in offices, sharply decreased the demand for games, especially online ones, and led investors to wait and examine which of the companies manages to present the success of its activities in its financial statements, without the black swan effect.

Tejas Desai, a research analyst at the American ETF company Global X, explains: "Inputs have started to return to travel to offices and back to normal and have made the year 2022 challenging, at least so far, for the gaming companies.

Along with the return to normal, the field is also facing the challenges of problems in the supply chain, and shortages in semiconductors, which continue to cloud hardware sales in gaming as well. In the mobile sector, however, it is already possible to see about 30% more spending per user per week compared to pre-pandemic levels, and the sector is expected to lead spending on games with about 60% of them on mobile until the end 2022.

On the other hand, other economic challenges such as inflation and the increase in tariffs seem to provide a tailwind for consumer technology, including the world of gaming.

It should also be remembered that we are before the holiday season, and this will drive the pace of purchases - also into the world of gaming.

In our estimation, gaming and e-sports expenses will remain relatively durable, despite inflation and the increase in rates.

In addition, some of the gaming companies have a strong balance sheet with relatively low debt alongside a large cash fund that is at hand, and it is likely that we will see consolidation in the field, either through acquisitions or mergers between companies, in order to strengthen the position of some of the latter in the market."

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Tejas Desai, research analyst at the American ETF company Global X (Photo: Global X)

Gave up the game

The company whose share status was shaken more than the rest of the stocks examined by us is that of the American Unity Software, which about two and a half weeks ago received a cold shower when the AppLovin company announced that it had given up the first purchase at a value of 20 billion dollars in a stock deal.

Unity Software ended the second quarter deepening the loss and reported a $205.8 million quarterly loss, or 69 cents per share, compared to a $148.3 million loss in the corresponding quarter last year, or a loss of 53 cents per share.

In contrast, the Japanese company Nintendo presented in its third fiscal quarter of 2022 profits almost identical to those it presented in the corresponding quarter last year, and its stock fell by approximately 9.9% since the beginning of the year, which represents an increase of approximately 38.5% since reaching a low price in Corona, and approximately 5.4% since the end of 2019.

Desai: "When considering Unity, remember that over the past 12 months, it has increased its sales by 31.2%, bringing its total sales to approximately $1.2 billion.

Some of the company's technologies, which sell a cross-platform game development engine that makes it easier for developers to build end-game experiences, are ground-breaking and can be critical to the development and construction of game experiences and the world of the Metaverse.

As for Nintendo, which is primarily a gaming hardware company, its success can be attributed to becoming one of the most dominant players in the console hardware category over the past decade.

The company's latest gaming console, called the Nintendo Switch, has sold over 100 million units since its launch in 2017, and the Japanese giant also has one of the most extensive game distribution platforms, as well as a library of intellectual property characters and game titles.

Examining the companies within the scope of the field shows that they do suffer from the hiccups of the period that interfere with the normal flow of financial oxygen.

The weakening of consumer power may deteriorate and thus also weaken the gaming industry.

However, the results of the gaming sector also show growth of 10%-15% year over year on the basis of 200 billion dollars expected in 2022.

A low valuation environment, such as the one the gaming companies are in, can also be an opportunity, and we believe that the gaming companies will generate The most of this environment, in order to unify, cut excess expenses, optimize balance sheets and position themselves for the next chapter in innovation that comes to digital experiences."

While the gaming companies are building the next user experience, investors are waiting for the right timing to return to the game of investing in their shares and enjoy collecting the profits while riding on a hump.

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• Gaming

• stock

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• Corona