Reopening and China are causing moderation in gaming Reopening and China are causing moderation in gaming Reopening and China are causing moderation in gaming

Reopening and China are causing moderation in gaming

5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity update we take a look at the gaming industry which is currently experiencing a setback in equity markets as sentiment has soured a bit on the Chinese gaming crackdown and stagnation in gaming consumption in the developed world as economies are reopening. The question is whether this year's setback is a buying opportunity. Given the industry's profitability and long-term outlook we remain positive on the industry and our view is that investors should consider increasing exposure to gaming.


Our gaming theme basket is the worst-performing theme this year down 14.7% driven by a moderation of gaming consumption driven by the reopening of economies as vaccines are rolled out and employment is soaring. China’s gaming crackdown has also caused Chinese gaming companies to experience lower share prices as investors are uncertain of the long-term impact. One of potential regulatory changes rumoured in China is time restrictions for kids under 12 with the limit set to one hour on weekdays and two hours during weekend days and holidays. NetEase, one of China’s largest gaming companies, is expected to report earnings on Friday.

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.

NameSegmentMarket Cap (USD mn.)Sales growth (%)EBITDA growth (%)Diff to PT (%)Return 5Y
Tencent Holdings LtdMobile games597,12927.7745.049.7161.1
NVIDIA CorpGraphics card496,80552.7372.9-1.21,185.5
Sea LtdMobile games155,731101.14-46.16.9NA
Advanced Micro Devices IncGraphics card129,15745.0591.44.51,482.2
Activision Blizzard IncVideo games64,54224.6145.638.5108.0
Nintendo Co LtdVideo games62,61734.4280.039.3168.4
NetEase IncMobile games61,29424.3512.845.7138.9
Electronic Arts IncVideo games38,9961.66-21.123.077.6
Bilibili IncE-sport streaming30,82277.03-256.875.5NA
Unity Software Inc (*)Graphics engine30,23542.58-69.519.5NA
Take-Two Interactive Software IncVideo games18,6069.1930.133.3286.3
Nexon Co LtdVideo games17,20517.9017.444.2205.9
Embracer Group ABVideo games10,52671.91112.067.9NA
Playtika Holding CorpMobile games10,07725.64-7.354.9NA
Zynga IncMobile games8,81249.42-16.049.4204.5
Konami Holdings CorpVideo games8,2843.75-3.224.072.8
Ubisoft Entertainment SAVideo games7,32839.4469.335.837.7
Capcom Co LtdVideo games7,22416.8145.936.6520.2
Square Enix Holdings Co LtdVideo games6,99624.7936.310.7111.2
Kingsoft Corp LtdVideo games6,82727.9831.760.9163.4
CD Projekt SAVideo games4,302310.32554.27.1395.4
Keywords Studios PLCGame consulting2,90214.4253.013.9692.1
Corsair Gaming IncHardware2,63955.16244.741.0NA
HUYA IncGame streaming2,60130.33142.895.8NA
DeNA Co LtdMobile games2,30312.84NA17.2-27.4
Stillfront Group ABVideo games1,970102.90108.6103.6733.3
Paradox Interactive AB (*)Video games1,87339.1343.634.9167.0
GungHo Online Entertainment IncVideo games1,760-2.519.624.6-17.8
DouYu International Holdings LtdGame streaming1,18731.84NA114.3NA
Aggregate / median values1,790,74930.343.636.6167.0

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.

 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.