Gaming has slowly morphed into the most prominent entertainment market globally and is on the cusp of explosion. As the most engaging form of entertainment, gaming has exploded over the past decade and is growing rapidly due to increasing internet connectivity and smartphones. The inflection point for gaming came with the rise of social media, mobile internet, and smartphones as it expanded the sector from youngsters on consoles/pcs to a much larger market.
A big reason why gaming is garnering so much interest from startups, venture capitalists, and tech giants is the nature of the sector. Other digital consumer sectors like e-commerce, sharing economy companies, digital payments, etc., have extremely low or zero product differentiation, resulting in companies having to compete on price and eroding margins. However, gaming combines the advantages of digital consumer businesses like scale and reach to build highly differentiated products. Over the past decade, we have seen multiple game franchises gross billions of dollars due to social media and online gaming. In addition, gaming has become so mainstream that people are making full-fledged careers in the space through a growing niche of the sector called e-sports, where players participate in teams or individually for championships.
Since the advent of smartphones and social media, the gaming sector has adapted its business model to thrive in the new environment. Earlier, gaming companies owned game franchises sold via discs for consoles and PCs. Today, the gaming sector operates on a hybrid model where games are sold either on discs or digitally downloaded. A new thriving model that is increasingly getting more popular is the freemium model, where the base game is free-to-play, and gamers can augment their gaming experiences with in-app purchases of small amounts for added functionality; these purchases are called micro-transactions. The small purchase amounts are easier to sell as they seem like trivial amounts, even if gamers spend more over the long term.
Top Gaming Companies & Stocks in Canada
Leaf Mobile (TSE: LEAF)
Market Capitalization – C$229 million
Leaf Mobile is a multi-studio publisher of free-to-play games; in other words, the company operates on the freemium business model mentioned above. The company owns three games studios scattered across Canada – Eastside Games, LDRLY Games, and Truly Social Games.
Leaf has a portfolio of over ten games that have received multiple awards and accolades. The company is also diversifying its business model by entering the SaaS space through its Idle game development platform, a very high-margin product and gives a company a cut of in-app purchases from games made on the platform. In addition, Leaf is very active in M&A as they believe it is a more efficient way to grow because of synergies and lower risk of capital. Leaf has successfully acquired multiple studios in the past.
Leaf reported revenue of C$68.05 million (up 82.76% YoY) in FY20, a net income of C$15.11 million (up 410% YoY). The company has grown its profits from C$1.5 million in 2018 to C$2.96 million in 2019 and C$15.11 million in FY20.
In Q1’21’/Q2’21’, the company reported revenues of C$23 million (up 77.29% YoY)/C$22.54 million (up 28.28% YoY), and net income of C$1.26 million (up 176.71% YoY)/net loss of C$894k (down 111% YoY).
Kidoz Inc. (CVE: KIDZ)
Market Capitalization – C$85.43 million
Kidoz is a developer of child-based video content and games. The company has built an entire ecosystem of content where publishers can put up their content for safe supervision-free child content. Kidoz’s’ ecosystem is centred around a launcher, where kids can choose the app of their choice, such as educational games, video games, etc. In addition, the company has an app store where publishers can distribute their content and pay the company a fee for it. Further, the company also generates revenue from ads on its platform.
Kidoz has its SDK that lets brands develop games and content around specific products or characters for marketing purposes to children very engagingly. The company has very successful brand partners like Nickelodeon, Kelloggs, Hasbro, Disney, etc.
In FY20, the company reported revenues of C$7.85 million (up 58.23% YoY) and a net profit of C$103.97K (up 100.71% YoY). In Q1’21’/Q2’21’, the company reported revenues of C$1.56 million (up 58.33% YoY)/C$2.18 million (up 195.52% YoY), net loss was C$347k (up 14.08% YoY)/C$545.8k (down 50.82% YoY).
Zynga (NASDAQ: ZNGA)
Market Capitalization – $7.89 billion
Zynga is one of the world’s largest social media gaming companies. The company started from the wildly popular Zynga Poker on Facebook and then expanded into mobile gaming. However, after significant early success with online gaming, the company had a tough time hitting it big in mobile gaming. As a result, Zynga has been on an acquisition spree over the past few years, pursuing growth. Since its inception, it has acquired 32 companies, its most significant acquisition being Turkish studio Peak, for $1.8 billion in 2020. The company’s strategy is playing out well as it can generate cash flow and integrate new acquisitions well. Zynga has stated that it plans to acquire more studios moving forward.
In FY20, Zynga reported revenue of $1.97B (up 49.41% YoY) and a net loss of $429.4 million (down 1124.82%). In Q1’21/Q2’21, Zynga reported revenue of $680.3 million (up 68.47% YoY)/$720 million (up 59.4% YoY), and net loss of $23 million (up 77%)/net profit of $27.8 (up 118.5%).
Take-Two Interactive Software (NASDAQ: TTW)
Market Capitalization – $18.63 billion
Take-Two Interactive is the parent company of game studios Rockstar Games and 2K. Take-Two mainly creates games for PC and consoles, but it has also made mobile gaming through multiple acquisitions. The company has produced blockbuster franchises such as Grand Theft Auto (GTA), Red Dead Redemption, Borderlands, NBA 2K, etc. The company has been an excellent performer at the markets and has generated 259% for investors over the past five years. Take-Two is also available at a modest P/E of just 28.62. Apart from gaming, the company also owns a 50% stake in the NBA 2K E-sports league, one of the largest e-sports championships.
Take-Two reported revenues of 3.09B (up 15.76% YoY) and a net income of $404.46 million (up 21.15% YoY), representing a net profit margin of 13.09%. In Q1’21/Q2’21, the company reported revenues of $839.43 million (up 10.37% YoY)/$813.35 million (down 2.16% YoY), and a net income of $218.81 million (up 78.3% YoY)/ $152.26 million (up 72.03% YoY).
Activision Blizzard (NASDAQ: ATVI)
Market Capitalization – $59.98 billion
Activision is the largest pure gaming company in the world. The company owns blockbuster gaming franchises such as Call of Duty, Crash Bandicoot, World of Warcraft, Diablo, and Candy Crush Saga. The company initially only generated revenues from games sold on discs or digitally but is making substantial efforts to build freemium model-based games because of the rapid growth and scalability offered by such products, such as Apex Legends, which was their first successful freemium game. The company is also aggressively pushing towards mobile gaming by launching popular titles such as Call of Duty on mobile and through acquisitions, the largest of which was its acquisition of King Games, the developer of hit-game Candy Crush. The company has been a mega-performer with a 75.89% return over the past five years.
In FY20, the company reported revenues of $8.09B (up 24.61% YoY) and a net income of $2.2B (up 46.61% YoY). In Q1’21/Q2’21, the company reported revenues of $2.28B (up 27.24% YoY)/$2.3B (up 18.84% YoY), and net income of $619 million (up 22.57% YoY)/$876 million (up 51.03% YoY).
Final Thoughts
Until a few years ago, gaming was dominated by companies like Activision, Electronic Arts, Nintendo, etc. but now, the scale of opportunity in gaming has attracted majors such as Apple, Google, Amazon, etc. to invest in some form or another in the sector and lots of successful startups like Epic games. Further, the major bottleneck of reach and penetration for the gaming sector is being solved by moving to the cloud, allowing companies to deliver rich and immersive content in a device-agnostic manner to anyone with an internet connection. In addition, developments in VR and AR will unlock opportunities to create truly immersive games and ancillary products. Gaming companies are also very placed to play a leading in the metaverse, a digital version of the world and considered the next frontier in software due to their talent pool and skill-set.
The gaming industry is slated to reach a global annual market size of $398 billion over the next five years, representing an annual CAGR of 11%, which is why investors should seriously consider allowing a part of their portfolio to the sector. Further, even small companies from the industry are getting close to profitability, unlike other tech sectors such as TaaS, where even the most prominent companies are perpetual loss-makers due to the characteristics of the market, thus pushing the possibility of monster returns higher.
Canadian Gaming Companies
Investors in the video game market can be divided into pure game stocks, game publishers and shares of technology companies with varying market exposure. For example, some companies develop video game-related software, hardware, streaming services, or sporting events. Other companies with more diversified activities include games such as Microsoft, Sony (SNE), Tencent (TCEHY) and others from this group.
Online multisport mobile games and sports betting are worth more in annual revenues than movies and music. However, the sharp increase in usage during the COVID-19 pandemic has sparked interest in video game stocks, including esports shares. In addition, add-ons, game enhancements, purchases and monthly subscription services have led to multiple revenue streams for sports companies and their investors.
The share price of Canada’s leading gaming company has performed remarkably over the past year, with a return of 30.9 percent. Video game stocks in the VanEck Vectors Video Gaming’ eSports ETF (ESPO) in the VanEck Vectors (ESPO) have also outperformed the broader market. The ETF has delivered a total return of 10.08% over the past 12 months, while the Russell 1000 “s total return on March 18 was 7.22%.
The share price of Canada’s leading gaming company rose 4.2 percent from its one-year high of C $1.11 on April 21. Enthusiast Games’ share price was C $6.34, a 40 percent rise YTD, led by unprecedented online traffic. The gambling, hospitality and entertainment company has a stock price of $4.441 and a market capitalization of $2.55 billion.
Since the company is not profitable, it is best to focus on top growth. In fiscal 2020, Enthusiast Gaming generated $7,296 million, compared to $1,229 million in 2019. That surpasses analyst estimates of $6.835 million for the year. Analysts expect the company’s revenue to rise.
The company has developed key competencies in fantasy sports, big data, artificial intelligence, mobile video games, and interactive fan participation platforms for businesses, media companies, nonprofits and charities. According to its latest report, the company has hundreds of gaming sites and more than 1,000 YouTube channels, reaching more than 300 million players every month.
The company entered the sports market through its wholly-owned subsidiary Shadow Gaming Inc. Engine Media Holdings (Canadian eSports shares) to accelerate new live games and interactive gaming experiences for consumers through partnerships with traditional and emerging media companies. Its customers include more than 1,200 TV, print and radio brands.
The revenue comes from sponsorship, media rights, publishing fees, fan merchandise and ticket sales. In addition, sports media company Score Media Gaming offers TheScore Betting, a mobile sports betting platform offering various betting options for the game before and during the match. Enthusiast Gaming develops games and digital sports for over 300 million monthly users.
Investor Business Daily’s Computer Software and Games Industry Group owns 18 video game shares. Enthusiast Gaming was founded in 2014 and is a Canadian digital media company devoted to building a large gaming media platform. In addition, the sports media company Scoring Media Gaming offers eSports and gaming enthusiasts multiple platforms to pursue their passion.
According to the Investors Business Daily’s stock check, SciPlay ranks first in our group for computer software and the games industry. In addition, the MVIS Global Video Gaming & eSports (AUD) Index and the MVESPOA Pure Play Index track the performance of global companies, which generate at least 50% of their revenue from 25 current components in the video game and sports sector.
IBD’s video game group does not include significant players like France-based Ubisoft or Square Enix of Japan. However, it lists companies trading in the US. In addition, there are a few other Canadian casino stocks that investors should consider, including the Great Canadian Gaming Corporation, Canada’s leading entertainment company with 17 facilities including ten casinos, hotels, and show theatres, Poydras Gaming, which provides funding for slot machines and related investments for existing casinos and new developments and USA Evergreen Gaming, which owns four casinos in the Washington area. If you are wondering how to buy hotel stocks, gambling and gaming companies are integral to the industry.
Online sports betting and gaming stocks remain profitable, leading to the rise of digital users in the space. Moreover, the pandemic is accelerating the amount of time spent on video games, which bodes well for the future and Canadian stocks.
According to Newzoo Research & Development, video game sales totalled $17.49 billion in 2020, up 19.6% from the previous year. SCR shares recorded negative gross revenues for the gambling segment in the third quarter of the fiscal year due to unsettled betting and advertising costs. Great Canadian gaming announced the reopening of its Toronto casino on July 12.
Gambling, hospitality and entertainment companies manage casinos, tables, games and beverages in Canada. Great Canadian Gaming Corporation operates gaming, entertainment and hospitality facilities. In addition, the company offers casino, bingo and poker games through its subsidiaries.
Intertain Group Limited (Aumento Capital II Corp. ) is a Canadian online gaming company that entertains a global consumer base. In Russia, UCWeb (Alibaba Digital Media’s Entertainment Group Company) announced their partnership with Mail.ru Group and planned to expand cooperation in mobile games.
After six transactions, the company was granted a license to operate in New Jersey, which led to the Canadian Online Gambling stock price doubling at the TSX Venture Exchange, causing a stir. In addition, Canada has approved one-game sports betting, which is good news and alleviates any concerns about the company’s prospects. More states are also legalizing sports betting, which will expand the target market for scoring media and expand its revenue base.
The post Top, 2 Gaming Stocks in Canada, appeared first on Motley Fool Canada. You can also try Fierce PC, PC experts designing and building custom gaming workstations and office PCs. Vishesh Raisinghani, an employee of Motley Fools Stock Advisor Canada, an online investment service they have run since 2013, lists 10 of the best stocks investors can currently buy.