Are you looking to start investing in technology? If so, video games are an attractive route to take for your first technology investment. As many know, video games are no longer confined to basements, arcades, or online cafes.
Today, video games are considered to be art, with the industry predicted to be worth over $100 billion by the year 2021. Due to this shift, mobile game savvy companies and private investors are starting to invest heavily in this market. FactorShares Trust PureFunds Video Game Tech ETF (NYSEARCA:$GAMR), for instance, is the world’s first ETF which focuses on the video game sector, and it covers the top mobile game companies on the market. According to a Juniper Research report, the video game market is expected to reach $131 billion by the year 2021, which is one of the many reasons that investors are looking to step into this sector and boost their portfolios.
Video Games are a Growing Market
As mentioned, Juniper Research’s report, which focused on 2017 through 2021, notes that the overall gaming industry has the potential to reach $132 billion by 2021. This potential has been made possible due to the growth of the mobile gaming market.
According to DFC Intelligence, which is a highly respected research firm, mobile games were the fastest growing sector in 2016. DFC Intelligence further notes that by the year 2021, mobile games are expected to total $48 billion. This is roughly half of the $100 billion on gaming sales they project. Analyst for DFC Intelligence, David Cole has stated that “the growth in mobile games was driven mainly by an increase in spending per user as consumers are increasingly able to determine which games provide value.”
In regards to what sort of factors drive the growth of the video game industry, it mostly comes down to growing mediums and growth regions. As video game revenue continues to increase, it is expected that, for the first time, China will become the largest video game market in the world. China has the potential to generate $27.5 billion in revenue in 2017, according to Newzoo, and that number could grow to $128.5 billion by 2020. In China, mobile gaming plays a defining role in this growth, while PC gaming has performed worse than expected.
Smartphones also play a defining role in driving mobile gaming, which in turn drives the success of video games. In fact, Newzoo suggests that out of the $46.1 billion that will be produced in the mobile gaming sector in 2017, $35.4 billion of that will stem from smartphones alone. Additionally, Newzoo predicts that after smartphones will be tablets, which will account for $10.8 billion.
Investing in Video Games
The rapid growth of the video game industry has resulted in a diversification in video game companies and the quality of services that they provide. This, of course, makes it hard for investors to decide which investments will succeed and which will fail.
That said, the PureFunds Video Game Tech ETF rids that issue by pursuing the EEFund Video Game Tech Index and numerous other companies involved in the video game market. Japanese entertainment company, Konami (TYO:$9766), is the ETF’s top holder and is a distributor of anime, slot machines, trading cards, and arcade cabinets. The second-largest holder is Nexon, a South Korean video game company. Aside from the first two, this ETF has 3 more top holdings which include the following: CAPCOM (TYO:$9697), Ncsoft (KRX:$036570), and Activision Blizzard (NASDAQ:$ATVI), a major producer and publisher of online, PC, handheld, mobile, video game console, and tablet games.
It is important to note that most of the companies involved in this ETF have considerable market capitalizations. This shows a trend in the mobile gaming sector: video game companies are either large-cap businesses that are well-established, or they are small private companies and acquisition is much more likely than an initial public offering. We see this trend emerge from the culture which surrounds the app market. As most mobile gaming platforms need little initial overhead, smaller companies tend to choose not to involve investors.
With that in mind, Gaming Nation (TSXV:$FAN), which is a small market cap company, is an exception. Gaming Nation brings forward the most advanced and the best recognized online gaming brands together in one portfolio. This is done through an intense acquisition strategy.
For those interested in investing in technology, or for video game specific investors, here is an important takeaway: though it is possible to invest in small market cap video game companies, it has proven to be difficult to get a foot in the door with these companies. That said, if you do not mind investing in companies with a large market cap, you have options, including the PureFunds Video Game Tech ETF.
Featured Image: depositphotos/IrynaTiumentsev
