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Investing in Gaming Companies 101

October 07, 2020 · 7 minute read

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Investing in Gaming Companies 101

Ah, the nostalgia of childhood video games: Some might recall a rousing game of PAC-MAN® at the arcade, or a round (or six) of Frogger© on an original PlayStation®, played in the comfort of a childhood home.

For those with a more recent childhood, the introduction to gaming may have been something more contemporary, like League of Legends® or Bioshock™.

The gaming industry has grown a lot over the past few decades. And even for non-gamers who have never touched a joystick, investing in gaming might be a lucrative way to grow wealth.

As technologies grow, change, and evolve, and player audiences expand and diversify, more companies might work toward finding ways to turn gaming into profit.

In this article, we’ll walk through the basics of the gaming industry as well as why someone might decide to invest in gaming companies and how to go about actually doing so—even without thousands of dollars to drop.

Why Invest in Gaming?

Although most money-savvy folks agree that investing can be an effective way to put existing wealth to work, actually getting started can feel overwhelming—or downright scary. After all, there’s no such thing as a risk-free investment, and figuring out how to evaluate stocks can feel like trying to learn a new language.

So what makes the gaming industry in particular a smart choice when it comes to investing?

To help paint a clearer picture, let’s talk about how gaming has grown and changed over the years—and what continued developments it’s poised to make in the future.

The History of Gaming

Although we might think of video gaming as a distinctly 21st- (and, okay, late 20th-) century phenomenon, the first gaming system was actually developed in 1940 by a nuclear physicist named Edward Condon, who developed a computer called the Nimatron on which to play a game called Nim.

After continued developments in the 1950s and 60s, the first video game consoles marketed to the public appeared in the 70s, including Magnavox® Odyssey and Atari Pong®.

Throughout the 80s and early 90s, well-known game developers like Activision®, Electronic Arts™, and Nintendo® started developing better computer graphics and many of the basic video game dynamics are still in use today.

Sony’s PlayStation hit American markets in 1995, followed by the Nintendo 64™ in 1996, around the same time the internet began to see wider public access, digital gaming began to move forward with full steam, evolving into the multifarious and thriving industry it is today.

Given the immense popularity of video gaming now, it’s no surprise that many early investors in the industry saw significant returns.

For instance, say someone invested in Electronic Arts, the name behind heavy hitters like The Sims™, Battlefield™, EA Sports™ ,and more, in late September of 1995, for just over $9 a share. Today, each share would be worth approximately $96, an impressive rate of growth even considering inflation. (In 1995, the shares were worth about $15 in 2019 money.)

Of course, as with any evolving industry, there are bumps in the road as well—take, for example, the famous flop of Nintendo’s Wii U®. Smaller gaming development firms sometimes try, but fail, to launch new games profitably, and technologies that seem appealing in development sometimes don’t pan out in real life.

Still, many investment advisors see a bright future for the video gaming industry, even in light of recent market turbulence. One analyst went as far as to call video games “recession-resistant”—and one big reason why is sheer numbers.

Video Gaming: Future Outlooks

Video games have grown up quite a lot since their humble origins. Case in point: Almost 70% of Americans, or roughly 211 million , played video games in 2018, according to the annual Electronic Entertainment Design and Research Gamer Segmentation Report.

And gaming is not just an American pastime, but an international phenomenon. Newzoo, an analytics and market research firm focused specifically on games and esports, approximates that there are more than 2.5 billion gamers around the globe, who will spend an estimated $152.2 billion on their hobby this year, an increase of almost 10% over 2018.

Projections suggest these impressive numbers will only continue their upward trajectory; the same Newzoo report estimates consumers will spend $196 billion on gaming in 2022.

All of which is to say that, while no industry is invulnerable to the whims of the market, gaming does seem to be an area experiencing overall growth and success in an otherwise volatile time.

What’s more, gaming is continuing to grow, shift, and change, with the proliferation of mobile devices and the invention of augmented and virtual reality (AR/VR) technology providing new avenues for developers and manufacturers to take advantage of.

Types of Gaming to Invest In

These days, “gaming” is a broad term, referring to a wide range of digital and electronic pastimes. Developers are constantly seeking new storytelling methods and platforms, and the platforms themselves are evolving, too.

Which means that investors looking for gaming stocks to invest in have got their work cut out for them. Here are some gaming types and some gaming company stocks investors may want to look into.

Platform or Console Gaming

Games designed for release on a specific console or platform—and the consoles and platforms themselves—still account for a huge portion of the gaming market despite the increasing popularity of mobile and streaming technologies.

In fact, Newzoo reports that console gaming is the fastest-growing segment in the industry in 2019, outpacing mobile gaming for the second year in a row.

This segment feeds on consumer anticipation for progressive generations of consoles, which are constantly evolving, as well as the games that are developed and launched specifically—and sometimes exclusively—for these systems.

Computer Gaming

Computer gaming, sometimes referred to as PC gaming, is considered by some to be the “bedrock of innovation” in the gaming industry.

Although it enjoys a smaller share of the contemporary market, a majority of the common game dynamics, such as the battle royale style of Fortnite© or the multiplayer online battle arena (MOBA) style of League of Legends, originated with PC developers.

Mobile Gaming

Mobile gaming, which includes programs for both smartphones and tablets, is currently the largest segment of the gaming market, accounting for $68.5 billion in consumer spending (of which $54.9 billion comes from smartphone games).

Esports

Along with playing video games themselves, an increasing number of gamers and enthusiasts have become spectators as well. There is a large audience for professional, competitive video gaming known as esports, a global economy which will, according to Newzoo, top $1 billion by the end of this year.

Professional gamers compete in large tournaments, just as other sportspeople do, and also stream their individual gaming directly to audiences using services like Twitch. Sports megalith ESPN even established the College Esports Championship in 2019, solidifying esports as a legitimate sport—one that looks like it’s here to stay.

Investors wanting to learn how to invest in esports must first understand how esports make money—which it does, as do other athletic markets, in a variety of ways including broadcast licensing, live events, merchandise, and advertising.

Game development companies might sell exclusive rights to their in-house esports teams, as did Activision Blizzard with its Overwatch and League of Legends leagues. Large third-party advertisers, like Coca-Cola and Comcast, also sponsor both events and professional gaming teams.

Thus, there are many ways for investors to get their feet wet investing in esports, whether they target gaming companies specifically or the larger, adjacent telecoms that help facilitate esports gaming and events. For instance, Twitch, the largest esports streaming platform, is owned by Amazon (NASDAQ: AMZN), and AT&T (NYSE: T) is actively investing in esports sponsorships to grow their brand in a young, forward-thinking direction.

Upcoming Trends and Predictions

Across the various types of gaming, certain trends and technologies are set to continue the growth of this thriving industry, according to some experts.

For example, constantly improving graphics mean hardware companies like Nvidia (NASDAQ: NVDA) may see progress, and the proliferation of live game streaming could spell success for companies like Twitch and YouTube.

Furthermore, AR/VR gaming interfaces are now available via devices like the Oculus Rift and HTC Vive, introducing the public to an area of gaming technology that’s still in its infancy. In fact, a new market has arisen for startups helping advertisers create AR/VR advertising content to reach gamers and audiences worldwide.

Investing in Gaming: Risks, Drawbacks, and Headwinds

No investment is without risk and, indeed, there may potentially be some specific drawbacks to investing in the gaming industry.

For one thing, gaming is still a relatively new industry, one that’s constantly evolving. While innovation may offer opportunity for growth, it also tends to walk hand in hand with failures and flops.

In fact, some researchers estimate that only 10% of games earn 90% of the overall profit, a skew that is particularly harmful to smaller, independent developers.

Professional stock analysts also identify market oversaturation as a potential problem, particularly given the success of certain free-to-play games like Fornite, which can offset consumer spending.

As with every investment, it’s important to research stocks thoroughly before making a purchasing decision and to think critically about when is the most strategic moment to get into the market.

Looking at key performance metrics, such as the price-to-earnings ratio (P/E) and the price-to-earnings-to-growth ratio (PEG), can help you learn more about how a company’s apparent growth is actually progressing.

Most companies are required by the U.S. government to list key financial information on a quarterly and annual basis, so you should be able to find it right on the company website; check under the Investor Relations link.

Investing in Gaming Without Spending a Whole Paycheck

There’s another major drawback to investing in gaming, at least for the average consumer: A full share of some of the largest gaming-adjacent companies can cost a pretty penny. (At the time of writing, one share of Google stock was valued at $1,289.13).

And given the volatility of the gaming market, a consumer might be tempted to try to time the market or be scared off of investing in gaming altogether.

Fractional share investing allows you to purchase a sliver of a share, which can make these big names more accessible to the everyday investor. That means an investor has the opportunity to diversify their portfolio and add major players, even if they’re not rolling in it (yet).

SoFi’s Active Investing helps fledgling investors get started on their growth while learning the ropes along the way. The platform includes access to real-time investing news and curated educational content that can help investors go from beginner to pro, starting with choosing that very first stock.

As always, SoFi members won’t have to worry about the annoying transaction fees that can chip away at a carefully saved nest egg. And our collection of stock bits allows investors to get a piece of the pie for as little as $1—and by “pie,” we mean companies like Apple and Google.

Better yet, get $25 worth of stock—investor’s choice—when funding a SoFi Invest® account with $500.

Ready to get growing with your favorite companies? Learn more about our stock bit collection today.


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