Public gaming corporations sit on $45 billion money hoard, Konvoy says

Publicly listed gaming corporations are sitting on a $45 billion pile of money and money equivalents — and that would result in better consolidation within the $188 billion video video games market, based on 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 present maintain $45.1 billion in money and money equivalents, in accordance Konvoy, which cited these corporations’ newest public stories.

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

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

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

The VanEck Video Gaming and eSports ETF, which seeks to trace MVIS World Video Gaming & eSports Index, has climbed 20% within the yr so far, based on Konvoy. The blue-chip S&P 500 index, against this, has climbed near 12% yr so far.

The World 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% for the reason that begin of 2023.

Large Tech companies are additionally primed with loads of money to contemplate extra gaming offers, based on 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 accomplice at Konvoy, stated the corporate expects the Microsoft-Activision deal — which noticed the Redmond, Washington-based expertise big pay $69 billion for U.S. recreation writer Activision Blizzard — would probably result in additional mergers and acquisition exercise and create a brand new technology of gaming corporations.

“As lively gaming buyers, we imagine that avid gamers and gaming startups stand to profit from the deal because it improves the value-proposition for avid gamers and results in a vibrant M&A atmosphere 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 recreation publishers. The corporate is pushing its cloud gaming service, which does away with the necessity for conventional consoles likes its Xbox Sequence X or Sony’s PlayStation 5, with its Xbox Sport Go subscription product.

Chapman stated this might result in “new alternatives for rising recreation builders, infrastructure corporations and gaming platforms.”

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

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

Enterprise capital funding into online game companies slumped 64% yr over yr within the third quarter of 2023, based on Konvoy’s report.

It is a signal of how, regardless of the enhance to the trade from Microsoft’s landmark deal, the increase occasions for the trade 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 yr in the past.

Nonetheless, Konvoy’s Chapman anticipates the image for gaming VCs and startups will look brighter subsequent yr, as grim enterprise investing circumstances 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 anticipate gaming, which was considerably insulated from the preliminary impression of the financial downturn, to observe,” Chapman advised CNBC. “We anticipate gaming VC funding to see a slight uptick over the subsequent few quarters, when the trade will develop at an identical charge to earlier than the pandemic.”

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

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

Whereas in 2020, when shoppers have been flush with money because of straightforward financial circumstances, occasions have gotten more durable 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 in the present day, based on Konvoy.

The online game market continues to be large, and is projected to achieve $188 billion in total gross sales in 2023, based on Konvoy. That determine is up a modest 3% from the earlier yr, 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 yr of 2021.

Gaming income reached $180 billion that yr, climbing greater than 8% from $166 billion in 2020 I assume, based on Konvoy’s analysis.

In 2020, the trade noticed even greater development — greater than 9% yr over yr. That was when pandemic lockdowns have 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 trade 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 trade reaching a whopping $288 billion in total gross sales by 2028.

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