Gaming - growth potential in times of turbulence
Gaming remains a thriving industry in the digital economy both in Poland and globally. Covid has driven dynamic and operational growth in this area, with multiple IPOs, M&As worldwide.
Taking into account the PC and console segments, companies point out that the catalyst for effects will be new title launches scheduled for the next few years. It will lead to some sinusoids in results, too. After the pandemic jump, most companies experience an overall decline in the nominal number of gamers, yet, their engagement continues to be high. On the other hand, revenues from live services and the sale of digital goods in games considerably contribute to current outcomes, smoothing out the seasonality of those results, accordingly.
While the total number of mobile players tends to decrease after the pandemic boom, they happen to be better monetized. Commenting on the increase of customer acquisition costs, companies outlined a strategy of paying more attention both to the profitability of cohorts being acquired and to bigger selectivity of games, where sophisticated marketing is required (e.g. niche games) and where the masses can be targeted (e.g. hyper-casual games).
At their conferences, some foreign companies operating in the mobile industry indicated that the situation on their market has been currently difficult or deteriorating, including in-app payments. They forecast this may last for several more months. They also emphasize the continuingly high, player acquisition costs. On the other hand, they remark that part of the revenue loss from player payments is being neutralized by rising in-game advertising revenues.
The strong USD favours those generating revenues in USD, especially if costs are incurred in the local, weakened currency. Polish game producers, both mobile, PC and console, are, in fact, beneficiaries of the weak PLN. Despite the improvement in the PLN exchange rate in recent weeks, the situation has been still favourable for them.
Still, what remains widely supportive for valuations in the gaming sector, are M&A transactions, being performed significantly above stock market valuations. For instance, on the public market, the most noticeable takeover bid, announced at the beginning of the previous year, concerned Activision Blizzard at $95 per share from Microsoft, a 45 per cent premium for market valuations. Another, already finalised, example is Take-Two’s takeover of Zynga, a 64 per cent premium. The Chinese tech giant, Tencent, has also become more active on the international M&A market. Attracted by the rapid growth of the gaming sector in Poland, it invested in the listed company, Bloober Team in (PLN 77 million for a 22% stake) in 2021. Moreover, in February, 2022, it finalised the acquisition of 1C Entertainment Group (now Fulqrum Games). Tencent also announced that it will launch new cloud computing products aimed at overseas markets. The giant is thus seeking new avenues of growth in the face of a slowdown in its core online gaming business.
The previous year showed that price-sensitive players are spending less in tougher economic times. Yet, their engagement remains high across all segments. The number of global gamers continues to grow worldwide. Gaming has proved resilient to turbulent economic times in the past; now free-to-play monetisation and subscription services mean that gaming is more democratised than ever before. Games are now part of consumers' lives and this will not change. The next stage of development is already in the metaverse - the integration of gaming, cloud, fintech, blockchain and crypto. Wait and see.
Tom Wijam, ‘The Games Market Will Decline -4.3% to $184.4 Billion in 2022; Long-Term Outlook Remains Positive’. Newzoo https://newzoo.com/insights/articles/the-games-market-will-decline-4-3-to-184-4-billion-in-2022
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