When trying to pick stocks that can outperform the market averages, it can be beneficial to pay attention to strong secular trends. And there’s two trends that video game investors should be following. The first is the ongoing growth of video game live-streaming. And the second is the continued market share expansion of mobile gaming.
In this video from Motley Fool Backstage Pass, recorded on Nov. 29, Fool analyst Sanmeet Deo and contributors Jose Najarro and Jon Quast share some statistics and figures from the video game industry, explaining why these are two trends to watch.
Sanmeet Deo: Do us or our kids watch streaming on YouTube [owned by Alphabet] or Facebook or any of those?
Jose Najarro: Yeah, has there been a change between where you’ve watched it? If you used to be a Twitch watcher and now a YouTube watcher or a Facebook watcher?
Deo: I guess if I speak for myself, I haven’t myself watched anything on any of those platforms. My kids though, have definitely used YouTube and watched YouTube streaming. They’ve watched live streamers play Roblox or Fortnite or any of the other games that they’re playing on mobile. They don’t have Facebook accounts, so [laughs] they don’t go on Facebook gaming. Twitch, they haven’t used because we’ve never downloaded or anything like that. For them it’s definitely YouTube and YouTube is very easily accessible. We have YouTube already pretty much all of us on our phones or our computers, so it’s quite readily available.
How about you, Jon, any experience with those platforms?
Jon Quast: No, absolutely none. [laughs]
Najarro: Another thing I thought was interesting based on this report, the top three categories watched. Number one stays the same, is just watching. It’s pretty much just people talking more like a podcast or just talking random stuff. It could be game related, real life related.
The number two top watched product this quarter was Grand Theft Auto V. This is a game that has been out for numerous years, and it just shows how some people always forget how strong this platform is. They put Fortnite, Roblox in top of the tier, but Grand Theft Auto is number two in the most watched this quarter.
Deo: It’s interesting, you mentioned that and I have a graphic here to represent that. Most streamed games in October. This is from the Stream Hatchet report that I think you had looked at as well. League of Legends led with 252 million hours watched. This is across Twitch, YouTube gaming, and Facebook gaming. This is for all of them. Like you said, Grand Theft Auto V is second at 228 million. I don’t even know what Just Chatting is or Dota 2. I’m sure it’s very popular, given the numbers here. I have heard of Minecraft, it’s 99 million, and then a bunch of other games. I’ve also heard a PUBG Mobile. I think my kids have played those games and probably streamed them too. This is pretty amazing that you think of gaming. If you’re new to the space, you may not think as how much people watch gaming and stream gaming.
Najarro: One thing I want to mention from that slide, it just shows the strength of some power companies, New World, it’s number, I believe, 10, I forget, third to last, New World. That is actually one by Amazon Studios that just came out. I think this was one of their first big games. You can just see the power of how just having a big platform and how that money can make you in the top 10, even though it’s probably one of your first games being released as Amazon gaming studio.
Deo: This is interesting. Do you know who makes League of Legends?
Najarro: That should be Riot Games and a big portion of that companies owned by Tencent. I think it’s Riot Games.
Deo: Grand Theft Auto, do you know that one?
Najarro: That’s Riot Games.
Deo: That one too?
Najarro: No, Red Star.
Deo: Red Star.
Najarro: That’s Take-Two Interactive. I know it’s Take-Two Interactive or Rockstar I believe, something R star. [laughs]
Deo: Then Minecraft, I’m sure you guys know, is owned by Microsoft.
It’s interesting because as we look at these different games and stream games, part of the show too is what do we invest in in the gaming area? What are good companies and stocks to invest in to capture some of these trends and things we’re talking about. It’s not always evident when you’re looking at just the game names. Some of these companies are owned by a publisher who might be owned by another one, a bigger company like Tencent. Minecraft is a game that’s owned by Microsoft. It’s not always easy to figure out this game is leading, who do I investment in to capture that trend or that growth. I always find that interesting.
Also if you were to invest in Microsoft to capture Minecraft trends, you’re not buying a pure-play gaming company. They do have Xbox, a big portion of their revenues and business, but they have so much other stuff going on in Microsoft that’s not just a pure-play gaming company.
Najarro: Go ahead, Jon, sorry.
Quast: No, go ahead, Jose.
Najarro: I was just going to say it’s probably one of the biggest troubles as gaming investors is trying to find a good pure-play stock right now, because if you’re talking about, like you mentioned, Microsoft, Xbox is a portion, but then each individual game is a different portion. It’s a smaller. If you take a look at, for example, maybe EA Games you’re bullish in one game, but they still have different games within it. Finding that perfect gaming company can sometimes get me a bit aggravated in the gaming investing world.
Quast: Yeah, what I was going to say was, I appreciate this Sanmeet because this is one of the big trends that all video game investors should be aware of is that the streaming part of the gaming industry is big and it’s growing, and it’s probably only going to keep growing as our kids get older. Thinking about the different ways to play that trend is very important.
The other trend that is to me still under-appreciated and very big is the growth of the mobile-gaming industry. This is the sub-sector of the gaming industry that is growing and I like the article that you brought to the table and I’m just going to tie into it right now if that’s OK, from App Annie.
Statistics from a company called App Annie. This is a third-party data aggregator. What they’re sharing is that according to their analysis, mobile gaming is on track for $120 billion in spending this year. Now, according to their data, there was $100 billion in spending in 2020. We’re talking 20% year-over-year growth now. I don’t know if I’ve seen estimates this high as what App Annie is estimating. It seems like the other estimates I’ve seen are a little bit more down in the $80 billion range, but still, App Annie has got some very good data, so I’m not questioning it. I’m just saying, take it with a grain of salt.
But it’s showing this robust growth in spending in mobile gamings. 14.3 billion games downloaded in just the third quarter, this is across platform, across games, and 3.6 billion of these games are considered hyper-casual. Hyper-casual games, this is a game that be played in a minute or less. It’s a very quick to play. You can maybe just pull it out in between little things here and there. It’s a growing part of mobile gaming, these hyper-casual games. Many game studios are trying to now create a strategy around creating a hyper-casual version of a casual game that they already have, but this is another trend to watch and one that you, if you want to invest in video games, you need to figure out how you’re addressing an investment in mobile gaming.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.