Next-Gen Gaming Disrupts Entertainment
Microsoft released its Microsoft Flight Simulator last week and other game developers took a gasp. You can cruise over every square inch of Earth (including your house) thanks to satellite imaging, amongst live air traffic and in live weather conditions. It’s the closest thing to flying we’ll have in 2020; quite impressive!
But the game is not just an engineering feat. It’s a fillip to demand for virtual reality headsets, high-performance computing hardware, and joystick accessories, just as the Xbox Series X and PlayStation 5 are nearing their release dates.
If we scrub the numbers on this sector, we can see that now is the time for a large underbelly of smaller gaming stocks, the likes of Turtle Beach, Square Enix, IGT, and Scientific Games, to invest in their businesses and shoot for growth.
There’s set to be high incremental returns on invested capital for every relevant product these companies can market, as we’re headed for ‘the best of times’ in this hit-or-miss entertainment sector. It’s a potential golden age, but investors will need to see twelve months’ forecasts of it before re-rating the multiples of earnings that these stocks trade for.
If we get that, it could be the smallest companies that receive the most love, the most agile as Microsoft’s simulator moved the goalposts at relatively short notice. The movie streamers will need to watch out; video games compete for the same eyeballs as they, not to mention lifting quarantines creating outdoor competition once again. Lots of factors at play – game on!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.