Game Industry's Cost and Growth
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Where's the Growth in Video Games?
Video game stocks have been on a hot streak, but revenue growth may not be what you expect.
Jun 11, 2019 at 6:45PM There's an odd discrepancy taking place in the video game growth game industry today.
Most investors would view it as a growth industry with exciting advances like esports and digital in-game purchases.
But the reality of video games today is that it's become hard to find growth.
Activision Blizzard and Electronic Arts haven't grown much in a decade, and Take-Two Interactive has had huge ups and downs depending on game releases.
There's a shift going on in video games, and.
Image source: Getty Images.
Where growth comes from The chart below shows the growth in revenue for Activision Blizzard and Electronic Arts over the past decade.
For perspective, Electronic Arts' growth amounts to an annualized rate of just 2% over 10 years.
Activision Blizzard's rate isn't much different if we pull out the King Digital acquisition.
Any way you look at it, growth is anemic for video game makers.
There are a number of reasons video game revenue hasn't increased significantly over the past decade.
A big one is the trend toward free games, with monetization coming on the back end for developers.
If abut if the user base is small, the add-ons may not be enough to make the game profitable.
We're seeing this trend in blockbuster games like Call of Duty, which is still one of the most popular games in the industry.
But Activision Blizzard has seen.
The premium video game market may actually be contracting right now.
Esports was supposed to be the big growth engine for video games in 2019 and beyond, but that hasn't shown up in the numbers yet.
Franchise fees are bringing in millions in cash for league owners like Activision Blizzard, but ongoing revenue from esports will be shared with franchise owners.
There may be incremental sales of games because of interest in esports, but that hasn't fueled significant growth either.
Without a new console or technology like smartphonesthere aren't any easy growth options for video game makers.
The good news in video games I showed above that revenue hasn't been growing in video games, particularly for Electronic Arts and Activision Blizzard -- but net income has.
And that's really what's helped drive video game stocks higher.
A big reason net income is up is because of rising gross margin.
Digital sales, which are very low cost, are key to this earnings growth.
Another reason is the focus on blockbuster games that are refreshed year after year.
For example, Activision Blizzard's results are driven by World of Warcraft, Candy Crush, and Article source of Duty, which are usually refreshed each year.
Electronic Arts has tentpole titles like FIFA, Madden, and Battlefield to lean on.
Take-Two relies on Grand Theft Auto to drive its business.
A risk for video game investors Video game stocks have been on a hot streak for the past decade, with Activision Blizzard, EA, and Take-Two rising 164%, 338%, and 1,270% respectively.
But growth has been hard to come read more, and there may be headwinds coming if consumers are spending less up front on games.
Business models will adapt and change to freemium offerings, but this may not be the growth market that investors expect.
And if the top line isn't rising, that will eventually manifest with slower gains on the bottom line, which investors should keep an eye on in 2019.
Travis Hoium video game growth been writing video game growth fool.
How to Improve Your Gaming Skills FASTER - Growth Mindset for Esports Players
Any way you look at it, growth is anemic for video game makers. Where’s the growth? There are a number of reasons video game revenue hasn’t increased significantly over the past decade. A big one is the trend toward free games, with monetization coming on the back end for developers.
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