Public gaming companies sit on $45 billion cash hoard, Konvoy says

Publicly listed gaming corporations are sitting on a $45 billion pile of money and money equivalents — and that would result in higher consolidation within the $188 billion video video games market, in line with a brand new report from enterprise capital agency Konvoy, which was shared solely with CNBC.

The likes of Activision Blizzard, Digital Arts, Singapore’s Sea, Japan’s Nintendo and Bandai Namco, South Korea’s Nexon, and China’s NetEase, at the moment maintain $45.1 billion in money and money equivalents, in accordance Konvoy, which cited these corporations’ newest public experiences.

That may give them greater than sufficient monetary firepower to take a look at potential acquisition targets that would assist them construct out their mental property and merchandise.

Specifically, gaming companies wish to preserve players extra engaged for longer with live-service video games that add extra content material over time and paid subscription packages that provide a specific amount of free video games and entry to cloud gaming, or the flexibility to play video games by way of the cloud relatively than downloading them to their machines.

Publicly listed gaming corporations had a reasonably rosy 12 months in 2023, on the entire.

The VanEck Video Gaming and eSports ETF, which seeks to trace MVIS International Video Gaming & eSports Index, has climbed 20% within the 12 months to this point, in line with Konvoy. The blue-chip S&P 500 index, against this, has climbed near 12% 12 months to this point.

The International X Video Video games & Esports ETF, which goals to trace a modified market-cap-weighted international index of corporations in video video games and esports, hasn’t carried out as effectively, slipping 0.4% because the begin of 2023.

Huge Tech companies are additionally primed with loads of money to contemplate extra gaming offers, in line with Konvoy.

The VC agency stated that the world’s greatest tech companies which incorporates Amazon, Microsoft, Google, Apple, Meta, Netflix, China’s Tencent, and Japan’s Sony, have a mixed $229.4 billion of money on their stability sheets to deploy on potential offers.

Josh Chapman, a companion at Konvoy, stated the corporate expects the Microsoft-Activision deal — which noticed the Redmond, Washington-based know-how big pay $69 billion for U.S. sport writer Activision Blizzard — would seemingly result in additional mergers and acquisition exercise and create a brand new technology of gaming corporations.

“As energetic gaming buyers, we imagine that players and gaming startups stand to learn from the deal because it improves the value-proposition for players and results in a vibrant M&A setting for different offers to get closed,” Chapman advised CNBC in emailed feedback.

Cloud gaming is a key space for Microsoft because it brings Activision into its rising portfolio of sport publishers. The corporate is pushing its cloud gaming service, which does away with the necessity for conventional consoles likes its Xbox Collection X or Sony’s PlayStation 5, with its Xbox Sport Cross subscription product.

Chapman stated this is able to result in “new alternatives for rising sport builders, infrastructure corporations and gaming platforms.”

Microsoft’s blockbuster acquisition of Activision Blizzard was authorized by the U.Ok.’s Competitors and Markets Authority earlier this month.

The deal, valued at $69 billion, will see Microsoft acquire possession of a number of the most profitable properties in video video games, together with the huge Name of Responsibility franchise, Sweet Crush, Crash Bandicoot, Warcraft, Diablo, and Overwatch.

Enterprise capital funding into online game companies slumped 64% 12 months over 12 months within the third quarter of 2023, in line with Konvoy’s report.

It is a signal of how, regardless of the increase to the business from Microsoft’s landmark deal, the growth instances for the business in 2020 and 2021 have ebbed.

Gaming startups raised a mixed $454 million globally for the three months to September, down 9% quarter over quarter and greater than 64% from the identical three-month interval a 12 months in the past.

Nonetheless, Konvoy’s Chapman anticipates the image for gaming VCs and startups will look brighter subsequent 12 months, as grim enterprise investing situations begin to enhance — nonetheless, funding for gaming companies has returned to a ” sustainable new regular” that may proceed on the present tempo for the subsequent few years.

“As the worldwide enterprise market rebounds we count on gaming, which was considerably insulated from the preliminary impression of the financial downturn, to comply with,” Chapman advised CNBC. “We anticipate gaming VC funding to see a slight uptick over the subsequent few quarters, when the business will develop at the same charge to earlier than the pandemic.”

“Proper now, VC deal quantity and funding are corresponding to pre-pandemic ranges, and whereas we could not see the exponential development of 2021, we’re excited to see a steady enterprise funding market in gaming for continued worth creation within the business.”

Online game publishers have been grappling with a deterioration of macroeconomic situations, with excessive inflation and rising rates of interest denting shopper urge for food for discretionary spending.

Whereas in 2020, when shoppers had been flush with money because of simple financial situations, instances have gotten harder in 2022 and 2023 as central bankers have elevated rates of interest in a bid to stem rising costs.

Nonetheless, the online game participant base continues to extend, with a worldwide participant base of three.381 million at present, in line with Konvoy.

The online game market remains to be large, and is projected to achieve $188 billion in total gross sales in 2023, in line with Konvoy. That determine is up a modest 3% from the earlier 12 months, when gaming gross sales totaled $183 billion. However development has accelerated barely from 2022, when gaming gross sales rose solely 2%.

That got here after the standout 12 months of 2021.

Gaming income reached $180 billion that 12 months, climbing greater than 8% from $166 billion in 2020 I assume, in line with Konvoy’s analysis.

In 2020, the business noticed even greater development — greater than 9% 12 months over 12 months. That was when pandemic lockdowns had been in full swing, and other people had extra time to spend taking part in video video games indoors.

Konvoy is projecting long-term development for the video games business within the coming years, although. The agency stated that it expects a compound annual development charge of 9% within the subsequent 5 years, with the business reaching a whopping $288 billion in total gross sales by 2028.

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