By 
Around the Street
- LEAF — The short form prospectus has been filed. This is the largest mobile gaming deal in Canadian public markets history. Their Idle Kit engine is one of the parts of this story that I get excited about. Unity Software (U) has created the first pure-play true tech derivative in the gaming industry that has done particularly well in the context of the market. Latest update can be found here.
- EGLX — This has been in the works, but great to see and great to see the movement this week on the back of the announcement. They announced their plan to list on the NASDAQ as North America/UK’s largest platform of communities for video game and esports fans. Congrats to Adrian and the team.
- TGS/Pepper — Congrats to Guy, Jackson, and Spiro for announcing signing the definitive agreement to combine TGS (public), an esports physical and digital production business, and Pepper, a leading esports tech platform. Note that in August, US esports conglomerate Vindex announced that they would invest US$300M into this vertical.
- FANS/Askott (iGaming)— Great share by Scott Burton on the opening up of iGaming regulation in Ontario. Competition breeds efficiency, the monopolies are breaking up and this is just the beginning. Link
- Congrats to Anthony and the Griffin team on their $235M fund and to the guys at LUCK for being a rising star at EGR, thanks Kia for the shoutout
Weekly Note
I get this question a lot: Is it here to stay, will people keep gaming? Even though I’m a banker, and by training am supposed to be at best, cautiously optimistic, my disposition means that I often wear a pair of rose-coloured glasses when I consider the world. So, when I look at the world, I believe that a world without lockdowns is going to return. I think to myself that we’re going to return to some semblance of what was considered ‘normal’ a year ago.
COVID-19 has clearly been a massive catalyst for gaming. It has driven record breaking macro numbers and record-breaking numbers on the P&L of companies around the world. It’s hard to imagine a segment of the entertainment that has been more positively affected by COVID, and more talked about during COVID. Sports and traditional media have had their challenges, to say the least.
We have said that COVID has brought a decade’s worth of change forward in ten months. So, the question that people ask, is in this ‘new normal’ world that we all hope is coming, does gaming continue to grow?
Back when talks of lockdowns ‘started’ in North America, we looked at the gaming industry through the lens of Asia. The logic was simple, they were a few months ahead of us in the lockdown paradigm and had a particularly well advanced gaming industry. It seemed like a natural proxy. This is what we wrote back in March:
‘When covid-19 took specifically China by storm in January, some very interesting numbers came out as the largest human isolation event in history was implemented. From a micro perspective, investors in the Chinese media space would come to ask similar questions to us today. Questions like: What type of content were people consuming? Would people simply game more? Would people direct disposable income into gaming? For this, we do have some answers, and they are encouraging:
Year over year in January, aggregate online game time spent for Tencent’s most popular games would increase 28%, monetization of these games was seen to be up 50-60% from normal seasonality, with nation-wide online games seeing cash grossing increasing 30-50%. In February, China would see a 62% jump in mobile game downloads. During the first three weeks of February, average weekly downloads had jumped 80% compared with the same period in 2019. Overall, mobile game downloads touched 4B globally, up from 2.9B last year. Asia, as a whole, would witness a 46% bounce in game downloads in the same month. (App Annie, Sensor Tower, Credit Suisse, Macquarie).
In short, people under isolation were gaming more and more importantly directing their disposable income to spending in-game. The virus has been a boon for the gaming industry.’
Since then, the North American gaming industry has gone on to break records, both in terms of equity performance and P&L performance. This has been true globally. The beautiful part of all of this was that China was the proxy for all of it. We had a crystal ball, it just was in China.
So, we’ve seen this movie before. How is China doing now from a gaming perspective? Here’s a nation that is months removed from nationwide rolling lockdowns. The best proxy for gaming is the 800-pound gorilla that is Tencent. Tencent is a gaming and media conglomerate that quite simply dominates the market for gaming in China and is an owner / majority owner of many marquee game studios globally (Epic Games, Riot Games, Supercell). For this reason, Tencent’s quarter ending September 30 was eagerly anticipated.
It did not disappoint. The world’s largest gaming company reported NI of 38.5B yuan, surpassing analyst consensus of 30B yuan. Revenue from Tencent’s core gaming business grew at 45%, the fastest pace since 2017. The net net here is that, even in a world removed from lockdowns, the gaming boom persists. Oh yes, and North America is back teetering on the edge of entering more lockdowns. You wonder what the average consumer will be consuming from an entertainment perspective.
Interesting
- 93% of UK kids play video games. The UK Children’s Commissioner came out with some interesting numbers and quotes on the next generation of gamers. My favourite quote: “If you’re a default skin, people think you’re trash” – Nina, a 10-year-old Fortnite player. I wonder if that says anything about spending on digital goods as these kids grow up… link
Have a great weekend all. I’m all in on the Irish after the 47-40 Irish triumph over the Tigers last weekend, you can find me beer in hand watching them play BC. That or watching Bryson DeChambeau trying to reinvent golf while alligators the size of dinosaurs roam the Earth.
