Reopening and China are causing moderation in gaming

Despite some moderation in gaming consumptions and investors taking profit, the long-term outlook remains strong with a recent PwC report highlighting that gaming and esport growth is expected to grow 32% from 2021 to 2025. With gaming being very profitable for those with hit games the profit margins are luring new entrants into the industry. Netflix is branching into gaming with its large user base which could increase competition for other existing companies and squeeze smaller players with less distribution. This TV interview with Take-Two Interactive CEO is a good rundown of the current industry trends.

Our gaming basket is showing healthy revenue growth of 30.3% and EBITDA growth of 43.6% y/y, and analysts have not reduced their price targets much despite falling gaming stocks with the median price target being 36.6% above current prices suggesting strong sentiment. The video card manufacturers NVIDA and AMD are among the few gaming related companies with either a negative or low price target relative to the current price as the semiconductor constraints are now becoming a constraint on revenue growth for these two companies. We remain positive long-term on the industry and the overall valuation picture also look attractive combined with strong profitability in the industry, so the recent setback could be an attractive time to look for exposure to the gaming industry. The key risks are naturally stricter regulation out of China, stronger pace on employment reducing gaming consumption, and higher interest rates impacting valuations negatively.

Source: Bloomberg and Saxo Group
* Peter Garnry owns shares in these companies

Our gaming basket has been reduced to 29 stocks as Glu Mobile was acquired in April by Electronic Arts. All our theme baskets are annually updated in January unless a major IPO warrants an inclusion so the gaming basket will run in a reduced size until then.