Gaming’s big comedown will be spread unevenly

Devolver Digital

12/08/2022 14:33

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Oliver Taslic
    LONDON, Aug 12 (Reuters Breakingviews) - Will
inflation-pinched consumers spend more or less money on video
games? On the one hand, gaming can be cheaper than going to the
cinema or theatre. On the other, splashing out on virtual
“Fortnite” outfits hardly constitutes an essential purchase. One
certainty is that the pain of an economic slowdown will be
spread unevenly.
    After years of heady growth, analysts at media research firm
Ampere reckon https://www.ampereanalysis.com/press/release/dl/global-games-market-forecast-to-decline-in-2022
 the global video game market will shrink 1% in 2022 to $188
billion. At best, this is a guesstimate. Unlike other sectors,
the big economic slowdowns of 2020 and 2008 are poor guides to
the looming economic turbulence. Coronavirus-related lockdowns
saw sky-high video game engagement; meanwhile mobile gaming,
which now accounts for around half https://newzoo.com/insights/articles/the-games-market-in-2021-the-year-in-numbers-esports-cloud-gaming
 of industry sales, was in its infancy in the global financial
crisis.
    That said, in an unpredictable world, reliable revenue from
loyal players is likely to be more valuable. Take Electronic
Arts  EA.O . The $36 billion firm’s stock is down 2% this year,
far outperforming the Global X Video Games & Esports ETF. That’s
thanks partly to the staying power of its “FIFA” soccer series,
a top 20 bestseller in the United States every year since 2011,
according to NPD. In the year to March 2021, “FIFA” contributed
a “substantial https://s22.q4cdn.com/894350492/files/doc_financials/2021/ar/Annual-Report-(2021).pdf
” amount to EA’s so-called Ultimate Team sales, which made up
29% of the California-based firm’s top line. In Europe, the
larger gaming companies – measured by last year’s sales – have
outperformed smaller rivals since January.  
    With shorter track records, newer gaming groups face more
uncertainty. Devolver Digital  DEVO.L  listed in London in
November at a near $1 billion valuation, buoyed by its
pandemic-era smash hit “Fall Guys”. Its shares are down 70% this
year, and in June it said https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=4116263&lang=en-GB&companycode=us-ddi&v=ticker
 sales of new bets such as “Weird West” had undershot
expectations. Mobile gaming outfits, such as Poland’s Huuuge
 HUGP.WA , are also under pressure. When finances get squeezed,
the flightier fans are most likely to turn off. And privacy
changes https://www.breakingviews.com/considered-view/big-techs-data-virtue-signalling-has-casualties
 have made targeting potential new players with ads tricky.
    Still, such volatility could provide M&A opportunities.
Competition for talented developers is fierce, and so-called
“acqui-hires” – where entire companies are swallowed primarily
to recruit their staff – will be enticing if shares fall far
enough. Analysts reckon heavy hitters EA, Embracer  EMBRACb.ST 
and Sony  6758.T  will have around $4 billion of net cash by the
end of the financial year, according to forecasts compiled by
Refinitiv. If it does come down to a shootout, that’s a lot of
ammunition.
    Follow @olivertaslic https://twitter.com/olivertaslic on
Twitter
 
    
    CONTEXT NEWS
    Electronic Arts, which makes video games like “FIFA” and
“Battlefield”, on Aug. 2 reported net revenue of $1.8 billion
for the quarter ended June 30, up 14% year-on-year. The
California-based company reiterated its full-year sales
guidance, forecasting net revenue of between $7.6 billion and
$7.8 billion.
    Take-Two Interactive Software, maker of “Grand Theft Auto”,
on Aug. 8 reported net revenue of $1.1 billion for the quarter
ended June 30. That was up 36% year-on-year, helped by the New
York-based company’s $13 billion acquisition of mobile gaming
giant Zynga. On a call with analysts, Chief Executive Strauss
Zelnick said: “I don’t believe the entertainment business is
recession-proof or even necessarily recession-resistant”.

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 (Editing by Ed Cropley and Streisand Neto)
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