?? (#13) Video game industry: market & main players analysis
Costin Ciora, PhD.
CEE Advisor to Simon-Kucher | Financial Analysis Assistant Professor at ASE | Financial Analysis, Strategy, Pricing Expert | Author
Hello,
In this analysis my focus was video gaming sector. I included the market analysis and some of the players: Microsoft’s Gaming segment, Nintendo, Sony Entertainment & EA Sports.
The video gaming sector is fascinating and continues to be developed with very high investments. I remember the days in high school when playing Counter Strike or FIFA. Also, playing Red Alert during the university years in the student dorms. This analysis was started from a conversation with students at the Master program, who wanted to learn more about the video game sector.
The purpose of this newsletter is to connect the story with the numbers, or sometimes the numbers with the actual story. It is, of course, my own view on the topics without any investment recommendation. I hope we can start conversations around the points below.
In this visual from Visual Capitalist, you can see the evolution of the video games since 1970. In the last 15 years, mobile video games have become dominant with 101 billion $ in 2022, followed by PC games with 45 billion $.
It is estimated that the market will reach 300 billion $ in revenues by 2026, as pointed out by PwC analysis below. “An impressive?85%?of gaming revenue comes from free-to-play (F2P) games. These games are free upfront and generate revenue through ads, in-game transactions, and optional purchases.” An article In Yahoo Finance even argues that it will reach 682 billion $ by 2030, which is more than triple the current values.
?The number of players is expected to grow to 3,5 billion by 2025. As of 2022, Asia-Pacific has the most player (1,75 billion) and Turkey is the fastest growing country market.
Minecraft is the most sold video game with 238 million units, followed by Grand Theft Auto V with 175 million units. At the end of this article I will present a nice visual about the latest development of Grand Theft Auto VI.
When it comes to the environment on which games are played, it is estimated that the mobile games have 92,6 billion of the total revenues. We can see also the rise of console game with 7,4 % in 2023.
Microsoft leads the way in the largest acquisitions of gaming companies, with the 68,7 billion $ acquisition of Activision Blizzard in 2022. The integration of the acquisition is still in the works.
The gaming sector is dominated by the Big 3 - Nintendo, Microsoft & Sony which have 29% of the market. Sony is the leader with 13%.
Nintendo had in April 2024 the largest market capitalisation of 59,56 billion $. Previously, it was Activision Blizzard until Microsoft's acquisition in 2022.
European Video Gaming Industry
The revenue of European players is more than 25 billion $ according to VideoGames Europe for 2022 (increasing from the previous year). According to the same source, more than 110.000 people work in this industry across the sector.
Sony Entertainment analysis
Sony gaming segment reached 3644 billion Yen which is 23 billion dollars. An increase with 33%. But this increase wasn't followed by the operating profit which decreased with 27,7% leading to an Operating Profit Margin of 6.9% (versus 12,9% the year before). The Operating expenses increased with 41%.
But Sony's revenue is influencing by the gaming segment as seen in this visual from Statista below which show the game revenue share of total revenue.
The share of the revenue increased in 2023 for Harware & Others which had 43,8% of the total customer gaming revenues.
Microsoft Gaming
Xbox gaming consoles have only 15 billion $ in the total 211 billion $ revenues of Microsoft but things might improve because of the Activision Blizzard acquisition.
The acquisition of Activision Blizzard by Microsoft in 2022 was probably a good bet by the company. The Gaming Revenue of the company increased quarter to quarter (7,1 billion $ in Q2 2024 versus Q2 2023).
As pointed by the company "Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.".
The company states that "Gaming revenue decreased $764 million or 5% driven by declines in Xbox hardware and Xbox content and services. Xbox hardware revenue decreased 11% driven by lower volume and price of consoles sold. Xbox content and services revenue decreased 3% driven by a decline in first-party content, offset in part by growth in Xbox Game Pass."
Nintendo?
The company had high revenues during the pandemic period with close to 16 billion $ in sales in 2021. In 2023 the revenues dropped to 12,04 billion $.
In this visual from Visual Capitalist we can see the evolution of the consoles and the new growth for Nintendo Switch.
Nintendo's profit decreased in 2023 at all 3 layers. Operating Profit decreased with 14,9% while Net Profit decreased with 10,4%.
That decreased, also combined to the decrease in revenues led to a Operating Profit of 31,5% (compared wot 35% in 2022), as seen below.
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The research & development is an important category of expense for the company. In 2023, the R&D to revenue ratio increased to 6,9% (compared to 6% in 2022).
The type of segments that are included in the revenues are represented below. We can notice high values in 2020-2021 because of the COVID-19 crisis which accelerated the sales.
EA Games
Revenues of EA Gaes reache 7,4 billion $ in 2023, growing with 50% compared with 2019. The company has good Gross Profit margin at a level of 75,9% while the operating profit margin increased in 2023 to 17,9%.
In 2023, EA Games reached a 5,63 billion $ in Gross Profit with a 17,9% operating profit margin and 10,8% net profit margin.
The Research & Development to Revenue Ratio remains between high to 31%-32% of the total revenues. 2,33 billion $ were invested for Research & Development in 2023 by the company.
Finally, I wanted to show this visual on the next evolution of the 2nd most sold game in history: Grand Theft Auto. It is reported by Visual Capitalist that Rockstar Games invested 2 billion $ for the development of the game. The previous one had 265 million $ for development and revenues of 7.7 billion $.
Things to watch:
Before I go, here's a video on the gaming industry.
Thanks for reading and take care,
Costin Ciora, PhD.
P.S. In the next edition, my focus will be on the EV market & EV battery (and of course Tesla analysis), so don't forget to subscribe for the next one. Also, if you like this one, please share & comment with your thoughts.
References & interesting resources:
[8] https://www.visualcapitalist.com/visualizing-the-biggest-gaming-company-acquisitions-of-all-time/