Online gaming companies leave the old guard of gaming behind

The online gaming industry is proving itself to be a very strong growth industry; since the CV19 March lows, we have six online gaming companies up between 250% and 820%.

This gaming thematic has more legs than the .com bubble from 20 years ago, as there is real revenue, real profit, and exponential market penetration.

Background:

Games Report states that: “The world’s 2.7 billion gamers will spend $159.3 billion on games in 2020; the market will surpass $200 billion by 2023”.

When we compare ‘new-age’ computer / mobile-based gaming with traditional casinos, blackjack and poker machines - the mobile gaming arena dominates. Mobile gaming holds 56% of total global gaming industry revenue (Source: Dot Com Infoway).

This trend of becoming a sport - or e-sport - is well in play, with proven market appetite; big brands such as Google Stadia and Nvidia have launched cloud game streaming offerings in the last 12 months.

Today we are looking at leading gaming companies on the ASX, broken into two groups: the ‘new-age’, mobile and e-sports vs traditional bricks and mortar casinos. The return differential is surprising to say the least.

Leading New Age Gaming on the ASX:

First off are the ‘new age’ companies which, since the March lows, have had extraordinary performances:

Icandy Interactive (ICI), who develop and publish mobile games, are up 233.33% in just the last two weeks. ICI have recently signed on with a Seattle-based digital performance marketing firm with a strong track record of digital marketing for previous ventures being sold into Groupon. They have had solid results from a trial game that have beaten all previous ICI game-engagement metrics of Average Revenue Per Paying User (ARPU) and Average Revenue Per User (ARPR) from the advertising income perspective. Yesterday, ICI announced a partnership with Alibaba, to pave the way into the Chinese Gaming market.

Emerge Gaming Ltd (EM1), an eSports, gaming and technology company who provide 'tournament technology', are up 18.92% in the last two weeks. They have announced that they have become a Microsoft ISV partner or independent software partner meaning that they are seeking to co-sell the Game Cloud Streaming Product with Microsoft.

Betmakers Tech Group (BET), who provide critical software services to the racing industry, from racing bodies and rights holders, to wagering operators globally, which feed into PBH, are up 418.52% since March lows. Think an A2 and Synlait milk combination here. BET provide wagering calculation platforms, price manager, risk management solutions and pooled betting solutions.

BET’s focus has shifted to new products and customers to be more aligned with their financial performance to be linked with revenue and percentage of turnover deals typically 0.5%-3% of racing turnover. Key contributors have been content distribution and white label offerings

Pointsbet Holdings (PBH), a bookmaking, online and retail corporate bookmaker with operations in Australia and the United States are up 819.85% since March lows.

PBH has developed a scalable cloud-based wagering platform and have competitive advantages because they own their technology environment from end to end, such as the unrivalled speed and ease of use on a personalised platform. PBH’s most recent announcement is a retail entitlement offer for a capital raise, following the large placement we looked at earlier on Finer Market Points, however earlier in the month they announced their launch in Illinois, USA, taking their first bet in the state. Illinois is now the fourth state in the US which PBH are offering their services to.

E-Sports ETF:

For investors looking to participate in this thematic through a global, broader-brush perspective, the VanEck ETF ESPO.ASX covers the Video Gaming and eSports sector. 

The ETF holds a basket of global names that generate 50% or more of their revenue from the gaming and e-sports thematics. 

The largest holdings are the likes of NVIDIA, Nintendo, Tencent, Electronic Arts and the like. 

Traditional Gaming on the ASX:

While the bricks and mortar, traditional gaming companies have also increased in value since the March lows, their increases are much smaller than those of the ‘new age’ gaming companies:

Skycity Ent Grp Ltd (SKC) are up 113.82%.

The Star Ent Grp (SGR) are up 95.05%.

Aristocrat Leisure (ALL) are up 93.78%.

TABCORP Holdings Ltd (TAH) are up 57.77%.

Crown Resorts Ltd (CWN) are up 49.35%.

Aquis Ent Ltd (AQS) are up 6.25%.

Summary:

Gaming as a thematic has gained strong institutional investment over the last decade and evolved into a new market segment for consumers. The recent growth of participation, engagement and revenue, eclipse most of the traditional, well-established fundamental industries in the economy. Looking ahead, the gaming companies listed here are well positioned to benefit from this market thematic.

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