Market Beat: The future of video games
The popularity of video gaming continues to surge. When “Modern Warfare 3” was released, it had more than $400 million in sales in the first week.
That was a record for any entertainment product ever. The global video game industry is projected to have more than $70 billion in sales by 2015.
In the United States alone, the computer and video game industry employs more than 32,000 people. Fifty-eight percent of Americans play video games, and 45 percent of those are women. In the US, consumers spent more than $20 billion last year on video games, hardware and accessories.
The hardware is dominated by two big companies. Microsoft has the X-Box, and Sony produces the PlayStation. Microsoft is a familiar name to most Americans; it is a $300 billion company with revenue of more than $76 billion per year.
Their profits are more than $56 billion, and they had revenue growth of 18.50 percent over the last year. Microsoft stock pays a dividend of $0.92, and that equates to a dividend yield of 2.60 percent, which isn’t too bad in today’s low interest rate environment.
Sony is a Japanese company that has a market cap of about $22 billion, with revenues of $86 billion and gross profit of $15 billion. Sony is also a highly diversified company that is involved in the film industry and has a financial services division.
Traditional big box retail stores like Walmart and Best Buy also profit from video game sales, though they are a small percentage of their total revenue.
One of the big video game specialty retailers is GameStop. GameStop has small locations that sell video games and accessories. GameStop stock has performed very well this year, but their future could be uncertain because of the tendency for consumers to download games now instead of purchasing the disk.
This was a trend that has happened in the movie and music business as well. Video stores like Blockbuster thrived for quite awhile until the movie-on-demand model put them out of business. In spite of that, GameStop has more than doubled in price so far in 2013.
The industry also has several smaller players like Nintendo, Electronic Arts, Activision Blizzard and Zynga. Production costs for games and very high and one or two launch failures can devastate a small company.
One thing about the industry is fairly certain, and that is that video games are extremely popular and their popularity should continue to grow in the future.
Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.