(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity.)
Gaming consoles have taken a beating in revenues from previously unforeseen competitors: mobile and online gaming platforms. Indeed, the data in favour of alternate gaming platforms is quite alarming for traditional console and handheld producers like Nintendo, Microsoft and Sony.
Simply put, Americans numbering in the millions are increasingly playing mobile gaming devices. This ultimately detracts from the game time on more traditional console games. And while consumers are playing games on smart phones, computers and tablets for little to no cost they are becoming less willing to spend on more expensive console games.
Michael Comeau writes for Minyanville his prediction that Call of Duty: Modern Warfare 3 will be the biggest console release for the year when it hits shelves on November 8th. And if the industry continues to lose its customer base it may be the last big console entertainment launch for the rest of time.
He reasons growth in the smart phone industry, on which much modern gaming (think Angry Birds or Farmville) is being played, is expanding much faster than the traditional gaming industry ever did. In the second quarter smart phone sales “were up 74% to 108 million units in the second quarter. The Nintendo DS, the best-selling handheld-gaming platform of all time, sold 146 million units in its whole lifetime.” See the trouble?
“Its successor, this year’s 3DS, won’t fare nearly as well. In fact, it was so poorly received at retail that it received a significant price cut in July, just four months after release. From first to worst in one generation? That’s just plain scary.”
Meanwhile, online gaming companies like IPO hopeful Zynga have reported rallying revenues and expect annual growth of roughly 70%. Comeau reminds investors Electronic Arts only increased its revenues by 7% this year, THQ by 17%, GameStop by 4%. Take-Two Interactive is down 9%.
The decline in traditional gaming begs the question, is the shift in dominant gaming systems predominantly a reaction to a change in user preference or are competitive pricing and economic factors stopping players from purchasing more expensive console games? It’s also worth considering if the two have reinforced one another, and if so, will an economic recovery bring players back to consoles?
Given this information we were wondering, what do hedge funds think of the trends in the video game industry?
To find out, we collected institutional trading data for all video game publishers. Surprisingly, only 2 out of our original list of 18 saw a significant increase in institutional holdings over the last quarter.
Hedge fund managers don’t seem too optimistic on the industry’s future—do you agree?
For your information, here are the two video game publishers that are still attracting institutional investor interest.
analyse These Ideas (Tools Will Open In A New Window)
1. Take-Two Interactive Software Inc. (TTWO): Develops, and distributes interactive entertainment software, hardware, and accessories worldwide. Net institutional purchases in the current quarter at 9.3M shares, which represents about 11.84% of the company’s float of 78.54M shares.
2. Glu Mobile, Inc. (GLUU): Engages in the design, marketing, and sale of casual and traditional mobile games worldwide. Net institutional purchases in the current quarter at 7.8M shares, which represents about 17.38% of the company’s float of 44.88M shares.
Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.