Monty Guild, money manager and editor of Guild Investment Management, discusses the long-term potential — and surprising demographics — behind the video gaming sector.
To some investors, outperformance by this industry may come as a shock. But there are reasons for it that make sense and reveal an ongoing trend that will not be quickly exhausted -- and has the potential to develop in many directions.
Investors may not have been anticipating video game outperformance because of incorrect demographic assumptions -- the stereotypical video-gamer being lampooned in mainstream media as a socially inept young male living in his parents’ basement.
The real demographics of video gamers are very different, and changing quickly due to the rapid growth of video gaming on mobile devices. Recent demographic and opinion studies reveal some surprising data:
The share of men and women who report playing video games is about the same (50% for men and 48% for women).Women age 18 and older are 31% of the gaming population -- while boys age 18 and younger are only 17%.
Some 48% of U.S. households own a gaming console. And while a larger share of young people play video games, 58% of Americans between 30 and 49 play video games -- and 40% of those between 50 and 64.
In short, the American video game playing demographic is much wider and more diverse in age and gender (and, incidentally, in ethnicity) than commonly held stereotypes would suggest.
Video gaming is also part of the ongoing seismic shift away from traditional media and traditional media delivery systems. In markets where those traditional media were less established, video games are “leapfrogging” thanks to the internet, and particularly thanks to mobile internet access.
In part this is driven by convenience -- the portability of mobile devices and their play-anywhere capacity. Cost is also a factor, since with mobile gaming the investment in a PC “gaming rig” or a dedicated gaming console is not required.
This shift is also part of what is responsible for the expansion of the gaming demographic that has flown under many analysts’ radar -- the fastest-growing segment in mobile-based social gaming is women over the age of 40.
Besides the ongoing shift to mobile, and the demographic market expansion it is facilitating, two video game segments are outstanding in their future growth potential.
First is e-sports -- that is, consumption of video gaming by spectators. Viewing is expected to double from 2.4 billion hours in 2013 to 6.6 billion hours in 2018. This includes the consumption of individual professional gamers’ video feeds as entertainment and actual professional e-sports events.
Second is virtual and augmented reality (VR and AR). VR is a totally immersive experience, typically with a headset, while AR “layers” computer-generated images over one’s still-visible surroundings.
By 2018, game and app revenue for VR is expected to be about $3.8 billion -- and this will accelerate as technology improves and as mobile devices are recruited for VR/AR apps. In recent data, 20% of most-frequent gamers expressed an intent to purchase VR equipment in the next year.
The largest domestic pure-play gaming companies are Activision Blizzard (ATVI), Electronic Arts (EA), Take Two Interactive (TTWO). The companies have all experienced rapid price appreciation this year, and we would look for pullbacks as attractive entry points.
