Since the introduction of Pong in 1972, men and women everywhere have spent countless hours playing their favorite video games. At first, they congregated at quarter-hungry arcades, playing Pac-Man, Donkey Kong, and every arcade machine now considered to be a “classic.” These days, however, millions of households now own at least one video game console and games purchased in either dedicated stores or directly through the consoles via the internet.
Over the past few decades, video games became so popular that research firm Newzoo estimates last year’s revenue to be around $99.6 billion. By comparison, the U.S. film industry — the largest in the world — generated approximately $10.97 billion alone last year. For a global entertainment and media industry worth approximately $1.81 trillion, video games represent roughly 5.5% of the market.
Best of all, the bulk of all video game sales are from titles published by publicly traded companies. This means that if you wanted to invest in the ever-growing market, you could not only invest in the companies themselves, but the stores where games are bought, too. Here’s how:
Microsoft, Sony, and Nintendo are the three major console makers. They also make games for their own consoles.
Microsoft ($MSFT) doesn’t rely heavily on their gaming division, especially since their sales are being eclipsed by Sony ($SNE). Conversely, Sony relies heavily on their gaming division. In recent years, it performed well while their other businesses lagged. Nintendo ($NTDOY) is solely a gaming company, and though they’re moving into the mobile gaming space, they haven’t performed particularly well in the last few months. Regardless, game companies rely on these three companies’ consoles to sell games, and each stock is attractive to investors for a variety of reasons.
Japan has a huge console-owning consumer base, which is why many major game companies are headquartered there.
Companies like Square Enix ($9684), Capcom ($9697), Sega Sammy ($6460), and Konami ($9766) all trade on the Tokyo Stock Exchange. In recent years, many Japanese game companies were eclipsed by American and European-owned game publishers, and have relied more on creating mobile and pachinko machines to diversify their business. Still, Capcom’s Resident Evil series and Square Enix’s Final Fantasy series sell millions of copies worldwide, and titles in both series were recently released to much fanfare.
American game companies continuously push out games with worldwide appeal, with a particular focus on action games.
Take 2 Interactive ($TTWO) owns Rockstar Games, makers of the chart-topping Grand Theft Auto series. Activision ($ATVI) owns Blizzard, home to bestselling games like World of Warcraft and Overwatch. They also release the mega-popular Call of Duty series each year. Electronic Arts ($EA) is known for their licensed sports games, particularly the NFL Madden series.
Independent game stores are few and far between, but big box chains and specialty chains sell millions of games a year.
Best Buy ($BBY) and Amazon ($AMZN) sell millions of video games a year. Both companies also have their own unique programs that sell video games at a 20% discount. GameStop ($GME) specializes in selling video games and related merchandise (apparel, accessories, collectibles), while providing their own rewards program.
Should you invest in video games? There’s no doubt that more people are playing games and spending money on their mobile devices. Countless more companies are also developing games for the mobile space. Yet the video game market is steadily growing, especially as watching people play games through eSports and sites like Twitch grows in popularity. Thanks to new and revised consoles, the growing popularity of VR, and major titles set for release this year, the video game market could eclipse the $100 billion mark by the end of the year.
If you want to profit as these companies grow, you should do your research before you invest. If you think mobile game companies are where the industry will eventually head, you might want to look there instead.