Advertisers Finally Breaking Into Video Games

September 28, 2017 - Safehaven


According to KPCB, there are 2.6 billion gamers worldwide - that’s 2.6 billion people turning to video games for relaxation, entertainment or to kill time on the bus or metro. The Institute for the future estimates that gamers spend well over 3 billion hours per week playing games on smartphones, laptops, PCs, hand-held devices, and gaming consoles like Microsoft’s Xbox or Sony’s Playstation.

Video games, which used to be considered a niche market with little mass appeal, has grown 26x in the last 20 years to become a hugely valuable part of the modern technology consumer market.

What’s more, it’s a market with tremendous diversity. While some game developers focus on single-platform releases with high name-recognition, on a model similar to big-budget movie releases (think of Halo, Call of Duty, Destiny, FIFA), others try to carve out a new market through innovation.

The rise of hand-held, casual gaming has also presented opportunities for games-based marketing, direct-to-consumer advertising and micro-transactions that can turn a single game into a cash machine for whichever company develops it.

Savvy investors, therefore, have a lot to choose from. Here’s just a few companies looking to take advantage of the gaming boom that investors can look to for strong current and future growth:

1) Nintendo Co., Ltd. (NTDOY)

The famous developer was a pioneer in the gaming industry thirty years ago. After passing through a rough period, amidst fierce competition for platform market share with Sony and Microsoft, Nintendo has bounced back.

Recent quarterly earnings were $1.37 billion, a leap of 150 percent from a year ago. Expectations for future profits are high, thanks in large part to Switch, a new gaming platform that debuted earlier this year. Light, portable and multi-purpose, the Switch has driven strong sales for Nintendo, which expects to move 10 million units in this fiscal year.

Nintendo shares have jumped to a 52-week high and now sit near $42. An analyst from Credit Suisse forecasts the company will sell 130 million units through 2022.

The reason is the platform’s small size, which has allowed it to be marketed like a hand-held despite its design as a traditional platform, and the positive buzz it’s generated since its debut.

A few years ago, market-watchers were unsure that Nintendo could stage a comeback. Those doubts look like they’ve been put to rest.

2) Versus Systems, Inc. (CSE:VS; OTC:VRSSF)

The rise of PC and mobile gaming has brought with it a potent opportunity for advertisers, as well as a significant challenge. The new, and fast-growing market of interactive media advertising is set to become a $7 billion market by 2019, according to Statista - but game developers, and brands have yet to hit upon a scalable, flexible solution for in-game brand engagement.

As video games and interactive media look to surpass TV, radio, and movies as the most-consumed forms of media in the world, companies looking to expand their brands and attract new customers have found it difficult to penetrate gaming in a way that appeals to users.

Versus Systems, Inc. has developed a bold new way to address these problems. A small-cap company with some big ambitions, Versus seeks to do for gaming what Google AdWords has done for search ads, and what Facebook has done for social media advertising.

The Versus approach centers on prizes and promotions. The Versus platform allows game developers and publishers to offer real world rewards in-game. When players win matches, or reach specific in-game achievements, they are rewarded with real prizes that are sponsored by brands they likely already engage with. The Versus platform connects players’ in-game behavior to real-world rewards.

This system eliminates the need for intrusive pop-ups or advertising unconnected with the gaming experience, making the games more engaging and fun while allowing brands to reach the most engaged audience on earth.

Versus is inked a major deal with 704Games, the company with exclusive rights to develop games for NASCAR, which, according to Forbes, was the biggest spectator sport in the United States.

NASCAR has over 1000 brand sponsors, which means hundreds of brands that Versus could potentially harness for prizes and promotions in 704Games’ new releases on mobile, PC, and console.

Versus’ model should attract more developers like 704Games, as it drives additional player engagement and creates a new revenue stream for game developers through these targeted prizes and promotions.

By creating additional reasons for players to play longer and more often, and by sharing the advertising revenue from brands looking to engage with players, Versus aligns the incentives of the game developers, players, and brands - all of whom want to create a seamless and engaging experience for players.

Versus is poised to solve one of gaming’s biggest challenges: how to work with brands and advertisers in a unique way to make games more engaging for the world’s 2.6 billion gamers. With a system that integrates ads in an organic, experienced-based way, Versus (CSE:VS; OTC:VRSSF) could be the company that really breaks open the box on this enormous, and fast-growing market.

3) Dell Technologies (NYSE: DVMT)

Once one of the world’s largest computer manufacturers, Dell suffered some significant set-backs when it ran into competition from newer, leaner tech companies. The company has since recovered and is pushing some new frontiers in gaming tech, including VR and high-performance gaming rigs and laptops.

In January the company announced a range of new gaming laptops. Dell’s premier brand, Alienware, which markets mostly to casual gamers and those looking to customize their gaming experience, will be releasing new models in 2017 in all three size ranges.

Apart from its Alienware brands, Dell has marketed its Inspiron laptops to more budget-conscious consumers, or those looking to get a slightly less-bulky gaming model. The Dell Inspiron 15 is sleek, dependable and comes in at just $799 (the cheapest Alienware is $999, and that’s before customization).

These popular brands, name-recognition and strong marketing has made Dell the top name in laptops, both for dedicated gamers and casual consumers.

Dell share price has been on the up-swing since January 2017, rising from $54 to a current high of near $77. Should the company continue to prosper, its likely share price will increase by an even greater margin.

4) Tencent Holdings (TCEHY)

A major player in the rapidly-expanding realm of “esports,” Tencent Holdings owns Riot Games, the developer of the popular League of Legends. Esports, the genre of hand-held and online games that allows players to compete with one another, often for money prizes.

Tencent Holdings is a Chinese tech giant based out of Hong Kong. Along with Alibaba, it’s widely considered one of the most dynamic Chinese tech firms. Its resources are immense, as evidenced by its $8.6 billion acquisition of Supercell, the Finnish developer of hand-held games like Clash of Clans, another popular title.

Games held by Tencent attract massive audiences. League of Legends, just on its own, saw 14 million people view its championship tournament, with 30 million tuning in at some point or another.

With its acquisition of Supercell and its constant expansion into the esports and handheld gaming realms, Tencent Holdings looks set to continue its rise. Share price traded in the U.S. has shot up like a rocket since January 2017, rising from $25 to $40, and there doesn’t seem to many signs that the share price will decline any time soon.

Tencent Holdings is definitely a strong buy for anyone looking to burnish their gaming portfolio.

5) Asustek Computer Inc. (TPE: 2357)

While not strictly a gaming stock, the Taiwan-based laptop manufacturer Asustek maintains a presence on the gaming market with its range of affordable, multi-purpose laptop computers.

After a rough few years, where it launched an expensive foray into the realm of smartphones, the company set about restructuring in 2016 and early 2017. It’s now set to re-engage markets and focus more heavily on its gaming laptop division, according to the Nikkei Asian Review.

The strategy seems to be working. The company expects revenues in Q3 of 2017 to grow 15-20 percent on last year, with a major rebound coming in late 2017 and stability in 2018.

While sales volumes are expected to be lower, with only about 18 million units moved in 2017, higher item prices means bigger profits, while cost-cutting will improve overall free cash flow.

Many PC gamers prefer to use high-end gaming rigs, which can run in the $2000 or $3000 range. Gaming laptops, however, have become increasingly popular. Light, cheap and capable of playing even new games on lower graphics settings, the proliferation of affordable gaming laptops from Asustek and other developers indicates how the market has grown.

Recent research shows that gaming hardware sales were $26 billion in 2016 and likely to rise above $30 billion by 2017. While “heavy” gamers accounted for 46 percent of total sales, they constituted only 3 percent of the total consumer base.

Should Asustek succeed, it could tap into that potential market and reap some significant profits.

Other companies to have on your radar:

Kuuhubb Inc. (TSXV: KUU) is a company active in the development and acquisition of lifestyle and mobile video game applications. Its strategy is to create sustainable shareholder value through undervalued, but proven applications with robust long-term growth potential.

The company is headquartered in Helsinki, Finland and operates in both U.S. and Asian markets.

The company has seen its stock increase after a few recent acquisitions and currently trades at $1.60.

Mogo Finance Technology Inc. (TSX:MOGO): This is a new spin on unsecured credit, which is a burgeoning sub-segment of FinTech. Providing loan management, the ability to track spending, stress-free mortgages, and even credit score tracking, Mogo is at the forefront of an online movement to assist users with their financial needs.

Mogo’s software analyzes borrowers instantly and greatly reduces the traditionally cumbersome underwriting process for loans. It’s online only, so there’s very low overhead and a ton of cash to spend on marketing. Labeled as “the Uber of finance” by CNBC, Mogo is definitely turning heads.

With increasing membership growth and revenue lines continuing to improve, and a platform which many banks have failed to offer, Mogo could well become an acquisition target in the near future.

EXFO Inc (TSX:EXFO): EXFO isn’t new to the Canadian tech sector. The company was founded in 1985 in Quebec City, and its original products were portable testing products for optical networks. Since then, the company has acquired and build 3G, LTE, protocol, copper/xDSL, IMS, and VoIP test and service assurance products.

Recent developments from EXFO are promising for long term growth potential. The new baseband unit emulation technology which is sure to be adopted on a large scale, as the tech offers operators a reduction of costs and a faster revenue stream.

EXFO Inc is a model in the telecommunications industry. With a market cap of $273-million, EXFO is strong, but still growing.

Power Financial Corp (TSX:PWF): Montreal-based Power Financial Corp has been in the finance industry since 1984. The company operates in three segments: Lifeco, IGM and Pargesa Holding SA (Pargesa). And, with its holdings in a diversified portfolio spanning the United States and Europe, Power Financial is a leader in its field.

Focusing its investments in the emerging FinTech industry, Power Financial stands to benefit by riding this wave into the future. The company’s forward-thinking attitude and liberal approach to technology is sure to leave investors satisfied.

We like PWF because it owns 60 percent of Wealthsimple, a leading robo-advisor for investing in ETF portfolios.

Blackberry Ltd (TSE:BB) This well-known cell-phone pioneer is engaged in the sale of smartphones and enterprise software and services. The Company's products and services include Enterprise Solutions and Services, Devices, BlackBerry Technology Solutions and Messaging.

Blackberry used to be a worldwide leader in phones, but Apple, Google and other Android manufacturers have rapidly acquired market share. Blackberry has since focused on software and is now developing systems for autonomous vehicles. Tech giants such as Apple and Google won’t be able to repeat Blackberry’s success in this sector that easily.

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FORWARD-LOOKING STATEMENTS. Statements in this communication which are not purely historical are forward-looking statements and include statements regarding beliefs, plans, intent, predictions or other statements of future tense. Forward looking statements in this article include that the gaming industry continues to grow; that Versus Systems may have a system that would be accepted by gamers; that its prizing platform will appeal to video gaming companies and will encourage gamers to play more and buy more; that Versus Systems’ patent applications will become patents and that the patents can protects its intellectual property; the size of the potential market and market demographic for gaming prizes; that a lot of brands and prizes are expected to be added to the platform; that new games will join the Versus platform; that data gathered from gamers can be used and can be a potential revenue stream for Versus; that Versus will have a major financial impact when NASCAR Heat Mobile game goes live, expected in Q1 2018; that Versus can potentially partner with NASCAR brand sponsors; and that Versus can partner with a number of game developers for inclusion of Versus’ platform in new games. Forward looking statements involve known and unknown risks and uncertainties which may not prove to be accurate. Actual results and outcomes may differ materially from what is expressed or forecasted in these forward-looking statements. Matters that may affect the outcome of these forward looking statements include that markets may not materialize as expected; prizes in gaming may not turn out to have as large a market as thought or be as lucrative as thought as a result of competition or other factors; Versus Systems may not be able to diversify or scale up as thought because of potential lack of capital, lack of facilities, regulatory compliance requirements or lack of suitable employees or contacts;; Versus is dependent on the success of game developers; Versus’ patents may not be granted and even if granted, may not adequately protect Versus’ intellectual property rights; Versus is a development stage company and to date has no revenues; and other risks affecting Versus in particular and the gaming industry generally. The forward-looking statements in this document are made as of the date hereof and the Company disclaims any intent or obligation to update such forward-looking statements except as required by applicable securities laws.

Risk factors for the video gaming industry in general which also affect Versus include the following: please also review the risk factors listed in the annual filings of public companies in the gaming industry:

- The business is intensely competitive and “hit” driven. Versus may not deliver “hit” products and services, or consumers may prefer competitors’ products or services.

- The business is dependent on the success and availability of products developed by third parties, as well as Versus’ ability to develop commercially successful platforms for these products.

- Technology changes rapidly in the business and if Versus fails to anticipate or successfully implement new technologies or adopt new business strategies, technologies or methods, the quality, timeliness and competitiveness of its products and services may suffer.

-Versus may experience security breaches and cyber threats.

-Versus’ business could be adversely affected if consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate, to prevent data breaches, or by the application of consumer protection and data privacy laws generally.

- The products or services Versus distributes through its platform may contain defects, which could adversely affect Versus’ reputation.

-Versus’ business partners may be unable to honor their obligations or their actions may put us at risk.

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