eResearch |In June 2019, Overwatch, a videogame made by game developer, Activision Blizzard (NASDAQ: ATVI; LSE: 0H8X; DB:AIY), became the 64th game to generate US$1 billion in revenue from in-game purchases on either console, PC, or mobile. The Company now has six games in their portfolio that have reached this milestone, including World of Warcraft, Call of Duty, Destiny, Candy Crush, and Hearthstone.
In-game micro transactions have been given a bad image due to game companies’ greedy motives in trying to push revenues for in-game items. For example, in 2018, Electronic Arts Inc. (NASDAQ: EA; DB: ERT) when they took criticism from both players and game developers for creating a pay-to-win model, in which users were able to pay for in-game items that gave an unfair advantage in game-play.
Unlike EA Sports, Overwatch’s in-game content mostly includes items such as customized clothing and outfits called “skins” that enhance game experience but does not provide an advantage to game-play. Overwatch primarily promotes its “loot box”, which is a fixed price package that includes an unknown grouping of random in-game items. Users on Overwatch can also obtain loot boxes through playing the game, rather than paying cash to buy them.
The online games industry has drastically changed how it monetizes its revenue streams. Rather than pushing retail sales, companies focus on a longer term strategy model, in which companies work on customer experience and loyalty as it builds a user base that will eventually be large enough to bring in sustainable microtransaction revenue. The fierce competition in the industry is forcing companies to lower prices for their games, in an effort to get more users on the platform to build user data and determine how to monetize its game over a long term.
In June 2019, Superdata, a Nielsen Company, released a June update report on the Worldwide Digital Games Market. Global digital game revenue increased by 2% to US$9.2 billion in June, in which mobile increased by 7% year-over-year compared with Console and PC, which were down 2% and 9%, respectively. The games that led globally in gross revenue include: League of Legends by Tencent Holdings Ltd. on the PC platform, FIFA 19 by Electronic Arts Inc. on the Console platform, and Honour of Kings by Tencent Holdings Ltd on the Mobile platform.
For investors looking for small cap opportunities that might have better leverage to the gaming industry, here are 2 Canadian-based companies to research:
- Axion Ventures (TSXV: AXV; OTC: AXNVF; DB: 2A5)
- Headquartered in Bangkok, Thailand, Axion Ventures is a holdings company for innovative technology companies including gaming developers Axion Games and True Axion Interactive.
- Axion Game, formally known as Epic Games China, is a well-regarded developer in the global gaming industry known for creating high quality games at an optimal cost, and has supported developing multiple well known games such as Fat Princess and Rising Fire, which recently was selected by Tencent Holdings Ltd. to be part of the “WeGame” network.
- True Axion Interactive is a new joint venture that was created with True Corporation Company Limited, a major telecom and media company in Thailand, with video game publishing capabilities throughout Southeast Asia.
- AXV is currently trading at C$0.66 with a market cap of C$161.8 million.
- Kuuhubb Inc. (TSXV: KUU; OTC: BCDMF)
- Headquartered in Helsinki, Finland, Kuuhuub is a mobile game development and publishing company that caters to the female demographic through games such as Recolor, the #3 coloring application on mobile.
- Kuuhuub believes the female market is underserved in gaming, and that it can develop or find games to acquire that would be a quickly growing platform for this niche group.
- Product development and acquisitions are led by CEO, Jouni Kerän, a business leader fluent in Chinese with over 18 years of international game and app industry experience.
- KUU is currently trading at C$0.60 with a market cap of C$33.4 million.
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Activision Blizzard, Inc. (NASDAQ: ATVI; LSE: 0H8X; DB: AIY)
- Headquartered in California, United States, Activision is a video game company with subsidiaries including Activision Publishing, Blizzard Entertainment, and King Mobile. Activision is known for their diversified portfolio of games including Call of Duty and Overwatch on console, StarCraft and World of Warcraft on desktop, and Candy Crush Saga on mobile.
- ATVI currently trades at US$48.08 per share with a market capitalization of US$36.8 billion.
Electronic Arts Inc. (NASDAQ: EA; DB: ERT)
- Headquartered in California, United States, Electronic Arts is a video game company best known for their EA Sports titles which include FIFA, Madden NFL, NHL, NBA Live, and UFC.
- EA currently trades at US$89.69 per share with a market capitalization of US$26.9 billion.
Tencent Holdings Ltd (HKG: 0700; OTC: TCTZF; LSE: 0Z4S; DB: NNND)
- Headquartered in Shenzhen, China, Tencent is a multinational investing conglomerate focused on internet-related services and products.
- Tencent operates in the video game industry through its ownership of Riot Games and Epic Games, which hold game names such as League of Legends and Fortnite.
- HKG currently trades for HKD370.20 per share with a market capitalization of HKD3.52 trillion (US$ 450.1 billion).
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