Thematic Investing in the Gaming Industry: Future Prospects

Current Market Growth Trends

The gaming industry is experiencing low-to-mid-single-digit growth in the mobile market, driven by strong earnings and record cash flow in a competitive environment. Key factors include the growth of gaming consoles, engagement across platforms, and a focus on creativity and innovation, positioning companies for industry-leading growth.

"As we look forward, our expectation is over the next 12 months or so, we probably have low-to-mid-single-digit growth in the mobile market overall." --- (EA, earning call, 2024/Q4)

"Key assumptions and dependencies underlying the Company's outlook include: a continuation of the current economic backdrop; the timely delivery of the titles included in this financial outlook; continued growth in the installed base of PlayStation 5 and Xbox Series X|S, as well as engagement on Xbox One and PlayStation 4; the ability to develop and publish products that capture market share for these current generation systems while also leveraging opportunities on PC, mobile and other platforms; factors affecting our performance on mobile, such as player acquisition costs; our ongoing focus on our live services portfolio and new game pipeline; and stable foreign exchange rates." --- (TTWO, press release, 2024/05/16)

"Now let me turn to our outlook. In FY 2025, we expect to again drive results in a highly dynamic market, delivering fiscal year growth, strong cash flow and enhanced return on capital." --- (EA, earning call, 2024/Q4)

"Our teams are laser-focused on our core tenets of creativity, innovation, and efficiency, and as we deliver our ground-breaking pipeline over the next several years, we are poised also to deliver industry-leading growth and shareholder returns. I will now turn the call over to Karl." --- (TTWO, earning call, 2024/Q4)

"Turning first of fiscal year 2024, EA delivered strong earnings growth and record cash flow in a highly competitive market." --- (EA, earning call, 2024/Q4)

Consumer Behavior and Preferences

Consumers are increasingly favoring digital purchases, enhancing gross margins for companies like EA. Take-Two Interactive emphasizes aligning business strategies with consumer preferences, supporting platforms where gamers are active, and leveraging direct sales. Recurrent consumer spending on virtual currency and in-game purchases highlights ongoing engagement, while consumer data usage informs strategic decisions.

"Increases in consumer adoption of digital purchase of games combined with increases in our live services revenue generally results in expansion of our gross margin, as costs associated with selling a game digitally is generally less than selling the same game through traditional retail and distribution channels." --- (EA, sec filing, 2024/Q4)

"I do believe that the right strategy for our business is to be where the consumer is." --- (TTWO, conference, 2024/05/30)

"Also the ability for us to sell directly to the consumer. So these are all compelling things for us, and we'll continue to develop and support the PC platform as long as the gamer is there." --- (TTWO, earning call, 2024/Q4)

"Recurrent consumer spending ("RCS") is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, in-game purchases, and in-game advertising." --- (TTWO, sec filing, 2024/Q4)

"We have a corporate consumer database. We share all of our consumer data in a white room sort of sanitized way and certainly a a compliant way across our entire corporate footprint." --- (TTWO, conference, 2024/05/30)

Emerging Markets Potential

Emerging markets in the gaming industry present significant growth opportunities. Companies like NetEase and Sea Limited are actively developing products and targeting markets like China and India, respectively. Additionally, platforms like HUYA see broader opportunities for collaboration and resource sharing, enhancing the potential for success in these regions.

"But, as we said, we are actively developing products there. In the meantime, one further comment on the global market is that for our China domestic studios, we are also actively working on titles towards global market as well." --- (NTES, earning call, 2024/Q1)

"And well, if that is successful, I think that will be a meaningful or potential upside in terms of the users and the bookings considering India is a very, very big market." --- (SE, earning call, 2024/Q1)

"In this new market environment, we also believe that it brings broader opportunities to platforms to complement one another and share content and resources, thus creating more win-win possibilities." --- (HUYA, earning call, 2024/Q1)

"I think the degree of the UE difference slightly varies market by market. But I think the trend is pretty stable across most markets that we are able to improve this over time even further." --- (SE, earning call, 2024/Q1)

Future Outlook and Investment Opportunities

EA and TTWO emphasize strategic investments, innovation, and leveraging non-GAAP measures to enhance future prospects. EA projects growth in sports and IP ecosystems, while TTWO forecasts a 5% increase in net bookings for Fiscal 2025, highlighting robust investment opportunities in the gaming industry.

"We may choose at any time to raise additional capital to repay debt, strengthen our financial position, facilitate expansion, repurchase our stock, pursue strategic acquisitions and investments, and/or to take advantage of business opportunities as they arise." --- (EA, sec filing, 2024/Q4)

"And if we haven't innovated meaningfully, and if we haven't delivered on our strategy meaningfully, if we weren't willing to take the risk and invest judiciously for that future, then we won't deserve a seat at the table, never mind have 1." --- (TTWO, conference, 2024/05/30)

"Management believes that these non-GAAP financial measures provide investors with additional useful information to better understand and evaluate the Company's operating results and future prospects because they exclude certain items that may not be indicative of the Company's core business, operating results, or future outlook." --- (EA, press release, 2024/07/30)

"outlook for Fiscal 2025. We project net bookings to range from $5.55 billion to $5.65 billion, which represents 5% growth over Fiscal 2024." --- (TTWO, earning call, 2024/Q4)

"We see incredible opportunities ahead for us across our sports business, as we continue to build ecosystems around our biggest communities, we are also prioritizing our owned IP in the rest of our broad portfolio, which are among the most deeply engaging and culturally relevant entertainment properties in the world." --- (EA, earning call, 2024/Q4)