Charles-DutkaReading through analyst reports of various companies involved in the gaming sector and recent numbers showing a decline in the number of gaming sales, I begin to wonder what the market at large thinks of this. Many, I believe, will take this at face value and make the mistake of thinking that the industry is starting to level off and that we will slowly see revenue for gaming companies begin to taper.
What the individual investor may not realize is the fact that we are in the middle of a major transitional period. And they don't pay attention to the number of quality releases in the recent months. Most members of the “hardcore” gaming community, of which I proudly belong, realize this. The major transitional phase is the fact that two new systems are on the way, and a large number of people have yet to make up their mind as to which system they'll have in the following year. The other issue is that we are comparing numbers via year-over-year percentiles, and we should be comparing figures of the the few months before the release of the last major consoles. If we were to do so, we would see a significant increase.
This, combined with gaming having been in an off-season during the summer, with only a few definite day-one buys around, is most certainly what is bringing the numbers down. The exact opposite should be happening over the course of the next few months. Although this may not be the proper technical term, I believe that the gaming industry is currently going through "accumulation." People are starting to chart out their options and fill out birthday and Christmas lists. In my opinion, the coming years will show a significant rise in game sales, console sales (obviously) and the biggest rise yet in DLC.
For anybody saying “sell” to the likes of TTWO (Take Two Interactive), ATVI (Activision-Blizzard), and even SNE (Sony) you may be sorely disappointed at your lack of risk tolerance in the years or even months to come. Investors aren't always gamers but if they were, they'd understand all this, and be primed to strike.
I completely agree. The stock market can be tough, but I've been prepared
to ride Take Two, Activision, and Gamestop stocks during this period
of time to profit on it. 🙂
Since gaming as a mainstream source of profit is pretty new I see people misinterpreting the numbers all over the place. I think Charles is right in his assessment.
I don't invest in videogame stocks because none of them offer comprehensive reinvestment plans. On top of that, most dont consistently pay out dividends without interruption. One missed quarterly dividend is a big hit to overall yield. Sountil games can prove themselves, I'm out as a long term investor.
Technology is always risky. Without consistent dividends and double digit yields, it just isnt worth it. Especially when the drips and ocps that do exist often have fees attached.
I'll elaborate on why investing in video games as small independent investors is a BAD idea…
I invest outside of a broker or discount broker. I hate mutual funds, because of the MER's the bank pays itself. (If you see a return of 7%, chances are you actually earned 9.5%. On average, banks take about 2.5% of your principle as a fee) I hate GIC's because they have pathetic returns. The only time I use a discount brokerage is for Tax Free Savings Accounts or RRSP's, because stock transfer agencies don't offer those kinds of account options. I'll also hold American companies in RRSP's because Canada and the US has a free trade agreement that avoids paying taxes on dividends. Otherwise, the US gov would take 15% of my dividends from me before I even see it.
So outside of registered savings, I do most of my investing independently. I never pay fees, 100% of all yield (dividends plus stock price increases) go to me. No one takes their cut. I get it all. The downside is that in order for it to work, the company needs to offer dividend reinvestment plans (dividends paid go automatically back into buying additional shares to the 5th decimal point) and ideally, an OCP plan (Optional Cash Purchase).
The other downside, is that in order to invest in a company outside your own, you have to have a bank account in that country and they have to accept investors from outside their own country. This isn't so bad, though, since all Canadian banks offer US bank account options here, and I only have interest in Canadian and US companies, really. Especially since most big companies have US versions anyways, including Sony.
I've looked into Sony, but they have too many restrictions in place for recurring investments at this point. That may change.
Now, here's why I don't do video games…
There are plenty of companies out there, blue chip and otherwise, that perform tremendously well consistently. Some US stocks I own, for example, are in Johnson and Johnson, McDonalds, Coca-Cola, and Hasbro. They all have fee free DRIP and OCP plans. 100% of the money I invest goes completely to me. They also in the long term, typically produce around a 10-13% yield annually. (This is an average) I also have 7 or 8 canadian companies I invest in that produce similar results.
Video games are tricky because, A) it's hard to pick the best up-and-coming company. Game quality matters little. Only net profits matter in dividends… not quality of games. and B) They do not consistently pay out dividends on schedule.
Add to this that even Activision doesn't have a good reinvestment plan, it gets tough. Even if they did, it only makes sense to invest short term with a large sum in hopes of selling at high rates… but this is a gambling sort of investment strategy, and the truth is, if you invest like it's a casino, you'll get casino results.
I invest long term, and even if games are successful, I have a hard time believing they will pay out dividends and produce yields that rival the consistent recession proof stocks that deliver 11%+. Johnson and Johnson? Even in a recession, people still buy soap and toothpaste, you know… In Canada, I own banks and utilities. (Our banks are regulated, and have paid out dividends without missing a single pay out in over 130 years.) Utilities are great because people buy electricity whether the economy is good or not. (Blue Chip)
Video games is a gamble that, if successful, might do marginally better than what I can find. But after the fees they ALL seem to have as a barrier to investments…. it's suddenly lost all of it's potential. I think it's wiser to go with well researched companies who I am confident will last for the next 20-30 years of my investment life. I simply do not agree with the buy/sell mentality. Treat stocks like a casino, and you'll get casino like results. Patience is key, and I'm telling you… it pays….
I'm only 27… and I already earn an extra $8k per year in dividends alone as earned income. By the time I'm 40, I'll be earning close to $40k per year just on dividends… seriously… if I was comfortable living on $40k/year salary, I could literally retire at 40 and live off those dividends the rest of my life.
Last edited by Underdog15 on 9/20/2013 1:09:28 AM
well i think you are right that they don't look at the numbers right but they also don't know what we do so it is predictatable.
happy gaming =)
i dont buy the sales are low because of the imminent release of next gen consoles BS!
sales are low because people are simply just sick and tired of publishers CONSTANTLY releasing last years game again.
release something interesting and different and maybe will actually start to see some sales for it!
as ive said a billion times before, why must we wait till next gen systems to see something fresh, something innovative?
watch dogs, the division, the club, deep down, knack, all really interesting unique games.
and all games that could of easily been done on ps3.
but weve had to wait till new systems release before we see something unique and new.
its pathetic!