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The big players of the video gaming industry are enjoying a strong start to 2015, judging from the latest numbers from market research group Newzoo released earlier this week. The company released its list of the top 25 public game companies with the highest revenue, based on their tallies for the first six months of 2015.
Combined these 25 gaming goliaths took in around $28.7 billion in revenue (from gaming) in the first half of the year, up about 16% over the comparable period of 2014. This bodes well for the full year, as that pace is outstripping the rate Newzoo earlier forecast game spending to grow by in 2015. The research firm has forecast total video game spending will hit $91.5 billion in 2015, representing a 9.4% increase compared to 2014’s estimated $83.6 billion.
Newzoo expects higher spending on PCs, consoles, tablets and smartphones compared to 2014. The only real laggard expected is handheld games, which refers to the likes of the Nintendo DS, PlayStation Vita and the like. While these dedicated handheld consoles offer better controllers for manipulating characters on screen that is useful for the likes of challenging side scrolling games or first person shooters, the convenience of gaming on your smartphone / tablet is winning over the handhelds.
For most the gaming experience on a smartphone / tablet is good enough and there is no need to dig into your pocket for another few hundred dollars for a separate piece of electronics, especially one so specialised. Another factor we believe that has casual mobile gaming winning over handheld consoles is the vast choice of games available in the likes of the Google Play Store and the Apple App Store at very reasonable prices.
The vast user base of smartphones / tablets allows this as even a few dollars per sale can translate into huge sums for developers, especially those who hook users into their ecosystem, ‘ala’ Finnish developer Supercell and its Clash of the Clans. For handheld console developers the smaller user bases (especially in the case of the Vita) does not make this pricing strategy economic.
Therefore it is not surprising that Newzoo is forecasting tablet games to grow at the fastest clip this year, rising 27% to $9.4 billion, followed by ‘personal screens’ (smartphones / watches) up 21% to $20.6 billion. PC game growth is expected to remain robust, rising at mid-to-high single digit pace and remains the single largest segment.
The robust health of the gaming industry is good news for those companies catering to these game hungry customers and they are well represented in our Global Opportunities Fund and across the Fat Prophets research portfolios.
Tencent, Alphabet/Google and Sony all are established positions in the Global Opportunities Fund. Tencent Holdings (HK: 0700, entry price HK$145.20) retained its top dog status impressively by extending its lead, with $4.2 billion of gaming revenue up 23% year on year.
Sony (NYSE: SNE, initial buy $13.64) is benefitting from the success of the PlayStation 4 console, with gaming revenue up 12% according to Newzoo estimates. Activision Blizzard (NASDAQ: ATVI, initial buy $20.61) also saw gaming revenue up 12% year on year and is making the news with the announced acquisition of the maker of Candy Crush, King Digital Entertainment. As King is ranked number 10 on Newzoo’s list, the combination of the 1H15 gaming revenues of both companies would catapult the entity into second spot.
Finally, while Alphabet’s (NASDAQ: GOOG, initial buy $219.65) bread and butter remains search and the subsequent advertising revenues that brings in for Google, the revenue it gets from the distribution of games (i.e. the Play Store) is snowballing. Newzoo estimates its gaming revenue was up 30% year on year to $1.4 billion in 1H15.
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