Digital Gaming Investment Opportunities
Johan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global video games industry was valued at just over $71 billion in 2012. Global sales growth remained more or less static at 1% in value terms last year, but it is expected to grow $30 billion in the coming years (2012-2017). Some $15 billion of this forecast revenue is expected to come from digital gaming. This will be the most exciting area for investment going forward.
The video games industry now faces fresh challenges from the popularity of digital games, which can be played on other devices such as smartphones and tablets. In order for console manufacturers to succeed in this new competitive environment, they must capitalize on the growth of digital gaming.
World video games hardware, software and digital games, value size versus growth rate 1998-2012
Source: Euromonitor International
Zynga's new CEO, former Microsoft Xbox head Don Mattrick has the daunting task of making Zynga a money making machine that gamers feel comfortable with.
The second company, Giant Interactive Group (NYSE: GA), offers investors a healthy dividend yield of almost 5%. Giant is a leading online game developer and operator in China in terms of market share, and focuses on massively multiplayer online role playing games, or MMORPGs. Currently, Giant operates multiple games, including the ZT Online 1 Series, ZT Online 2, Giant Online, XT Online, The Golden Land, Elsword, Allods Online and World of Xianxia.
The company expects to achieve the following through this transaction:(NASDAQ: GAME)
- Facilitate the establishment of the company's mobile platform
- Improve the company's cost structure and earnings per share
- Improve the company's use of cash
- Eliminate recurring related-party transactions and settle related-party loans
Service fees paid to these affiliates represent approximately 21.3% of Shanda Games' total net revenue.(NASDAQ: GAME)
The aggregate consideration for the transaction is $811.5 million, subject to closing adjustments and payable in a combination of cash, deferred payments and settlement of an outstanding loan receivable from Shanda Interactive.(NASDAQ: GAME)
Despite the fair transaction price, I think this is a great deal for investors going forward. The transaction removes two cost components from the company's cost structure and is projected to improve EPS by approximately 40%-50%.
The three companies mentioned in this article will reap the fruits going forward. All three are doing what it takes to become a winner. Investors can still jump on the bandwagon and profit from it.
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Johan Seijkens has a position in Zynga and Shanda Games. The Motley Fool recommends Giant Interactive Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!