• Joshua Akinpelu

The Video-Game Industry - Locked(Down) and Loaded

Updated: May 14, 2021

The video-game industry levelled up in 2020.



It came as no surprise that a world locked inside looked to video-games to pass the time, producing one of the strongest pandemic markets in the process. As people replaced time spent outdoors with games like Animal Crossing, Among Us and Cyberpunk 2077, it’s no wonder the industry was able to stay resilient in such a chaotic market.


As the reality of ‘Black Monday’ set in, following the S&P 500’s historic 34% drop, gaming ETFs were 1-up. ESPO, a Video Gaming and eSports ETF outperformed the market, dropping less than 2% in Q1 and growing over 34% in Q2.


Spending on video games set a new record in the US, hitting $56.9bn, a 27% increase compared to 2019 and the industry was estimated to be valued at close to $175bn. The pandemic has accelerated the growth of an already swelling industry that has been set to grow at a CAGR (compound annual growth rate) of 7.3% between now and 2024 in the UK.


If you were watching closely you might’ve seen a slew of debt issuances, IPOs and acquisitions as companies providing games, software engines and gaming platforms looked to cash in on the industry’s Covid-induced optimism.


Here are a few you should know.


Unity


Unity, an American video-game software development company, went public in September. After offering 25 million shares at $52 each, their share price grew over 40% pushing their value from $13.6 to over $20bn.


Investors seemed pretty unfazed by the company’s $163mn net loss in 2019 and instead looked to the future growth of the mobile gaming industry. Half of the top 1,000 mobile games on Google and Apple’s app store use the engine and mobile gaming revenues hit close to $100bn in 2020.


Nvidia


Tech giants, Nvidia raised $5bn in investment-grade bonds with interest rates between 2.85% and 3.7% maturing in 10 to 40 years.


Despite shaky credit markets, Nvidia was able to get a coupon on its 10-year bonds that were lower than the coupon it paid on its 10-year bonds in 2016. Nvidia saw gaming revenues jump 26% year on year and FED rates stayed low so it’s no wonder lenders were more than willing to supply them with some cheap cash.


Nvidia is in the perfect position to profit from industry tailwinds. They earn more than half of their revenues from the gaming industry and more than 95% of PC gamers use Nvidia GPUs.


Microsoft/ZeniMax


In September Microsoft acquired ZeniMax for $7.5bn. You probably know who Microsoft is but video game holding company, ZeniMax, might be a little unfamiliar. ZeniMax is a big deal. They own the companies that developed blockbuster games like Elder Scrolls, Fallout, Wolfenstein and Doom.


The all-cash deal is Microsoft’s biggest video game purchase ever and puts them in position to take advantage of what CEO Satya Nadella called:


“the most expansive category in the entertainment industry”


The deal looks like a move to challenge Sony whose studios have pumped out triple-A titles like ‘The Last of Us’ and ‘Marvel’s Spider-Man: Miles Morales’.


It looks like the game is on.


References


https://www.pwc.co.uk/industries/entertainment-media/insights/entertainment-media-outlook.html#:~:text=Video%20games%20and%20esports,-Like%20OTT%20video&text=The%20sub%2Dsector's%20total%20UK,the%20five%20years%20to%202024.&text=Public%20awareness%20of%20esports%20in,other%20markets%20in%20the%20past.

https://www.zenimax.com/library

https://www.ft.com/content/12ede930-e31c-436b-8d8b-3f9b3957211b

https://mergers.whitecase.com/highlights/online-gaming-ma-levels-up

https://www.vaneck.com/etf/equity/espo/performance-distributions

https://www.business-standard.com/article/international/us-consumers-spend-57-billion-on-video-games-in-2020-amid-lockdowns-121011600543_1.html

https://www.fool.com/investing/2020/09/01/3-trends-supercharging-nvidias-gaming-business/

https://seekingalpha.com/article/4334699-nvidia-hits-debt-markets

https://www.cooley.com/news/coverage/2020/2020-04-03-nvidia-5-billion-investment-grade-bond-offering#:~:text=Palo%20Alto%20%E2%80%93%20April%203%2C%202020,billion%20investment%20grade%20bond%20offering.&text=NVIDIA%20trades%20on%20the%20Nasdaq,under%20the%20symbol%20%E2%80%9CNVDA.%E2%80%9D

https://www.ft.com/content/096b3eff-1b54-44af-a16d-3046938c4d4e

https://www.ft.com/content/04e874ab-9871-4379-ab3d-e0796f47eb06

https://www.ft.com/content/74f3ca26-373c-4afb-89a9-ec4c1a94c0f5


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