Are the best opportunities already behind us? Or is this just the beginning…
Although most sectors of the global economy have had a less than stellar 2022, the video game industry has been among the few bright spots. With record setting deal values, huge public and private investments, and a slew of massively successful game launches, this year has been nothing short of astonishing…
It was (is) especially astonishing considering the broad stock market has been wrestling a bear for months on end, as the Fed continues to raise borrowing rates.
It should be noted, however, that had the economy been on a stronger footing, there is a likelihood that the record deal value of 2022 could actually have been even better. It is believed by many in the space that these poor market conditions may have prevented or postponed not only new game title releases, but possibly large deals, IPOs, and SPACs as well.
Now, as the economy limps forward, and worries of recession grow, some in the investment community have begun to raise concerns about the near-term growth prospects of the video game sector.
Are the best opportunities already behind us?
According to a new report from Morgan Stanley, probably not. In fact, the title of its research report alone should settle any short-term concerns about the video game industry.
“Video Game Stocks: A Play for Growth”
The report (available HERE) says “…the video gaming industry is set to unlock new levels of growth next year as more high-budget, high-profile games and next-generation consoles hit the market. In fact, 2023 is likely to be an inflection year, as long as publishers continue to drop new “triple-A games,” considered the best of the genre.”
The report highlights several key growth factors that Morgan Stanley believes will help further catapult the video game industry in 2023.
These include more next-gen consoles and new game launches. As the supply chain bottleneck clears, more gaming consoles will become available for retail distribution and sale. According to Morgan Stanley, “one major console manufacturer is expected to sell around 18 million units by March 2023.” Since the bottleneck will be open, more games are likely to be launched as well. In the words of the report, “Morgan Stanley Research expects new title launches to accelerate going into 2023.”
On the regulatory front, the Chinese market has been a nightmare for game developers, publishers, and investors in 2022. However, this could soon change. Seyon Park, analyst at Morgan Stanley Research says, “We see the impact of regulatory measures in China waning, and gradually recovering as restrictions on minors normalizes.”
As for the potential recession, Morgan Stanley says economic downturns aren’t necessarily negative for gaming. As more consumers choose to stay home for entertainment, they often turn to video games as a cheaper alternative to going out. Omar Sheikh, an equities analyst at Morgan Stanley said, “Game sales have proven resilient to economic down-cycles.” Even during recessions, consumers have kept spending on video games; historically speaking.
Sheikh said, “Valuations at multi-year lows are highly attractive for long-term investors, as those companies with a record of development and a strong pipeline could see earnings growth beyond next year.”
So…
According to Morgan Stanley, 2023 could be yet another strong year for the video game industry, offering ample investment opportunity. And should the economy begin a strong rebound….
It could be a truly phenomenal year!
Source: https://www.morganstanley.com/ideas/video-gaming-outlook-2023