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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How Will the Gaming Industry Perform in 2021?

Companies / Gambling Feb 02, 2021 - 04:01 PM GMT

By: Submissions


2020 produced some unpredictable results for investors, with sharp falls and even steeper climbs for many companies around the world. Investors in the gaming industry did particularly well last year, with those that bought or held shares back in January 2020 now sat on equities worth twice as much. 

But what can we expect in 2021? Is there a bubble in the gaming industry that’s going to burst, or are the current valuations justified?

Microsoft - An Example of an Entire Industry

Tech companies of all kinds have been enjoying bumper profits over the last couple of years, helped on by both increased sales and lower costs. In 2020, Microsoft reported a turnover of $143 billion, up by around 14% ($18 billion) from the year before. This yielded $44 billion in net income, up 12% on 2019 and 168% on 2018.

This stellar financial performance was rewarded by shareholders, who drove the value of the company past $1 trillion. After shooting past this landmark figure in April 2019, the company started 2021 with a market capitalisation of more than $1.7 trillion and, at its current rate, could reach $2 trillion by the end of the year. 

That valuation would mean Microsoft is worth more than the entire economy of Italy and nearly the same as Brazil. At its current share price, the company has already surpassed the economies of South Korea, Russia, Canada, Australia, Spain, and Mexico.

Microsoft has benefited from having a diverse portfolio of products and services, with its Windows and Office applications some of its biggest revenue generators. But the company’s gaming division is also making a significant contribution to this. In August 2020, the latest version of Microsoft Flight Simulator went on sale for Windows, followed by a release on the Xbox Series X and Series S four months later. The game sold one million copies in its first week and has continued to sell well ever since.

That’s not the only way Microsoft is set to benefit either. The company saw a huge upswing in Xbox Game Pass for PC subscriptions, and this surge in popularity is expected to help manufacturers sell $2.6 billion in additional PC hardware, for much of which Microsoft will receive a cut. Microsoft also launched its new console in November, shipping over 3 million before the end of the year, and is forecasting sales of 30 million by 2023. 

It’s record profits reported in 2020 are likely to continue for the foreseeable future. This performance is not an anomaly either. The company is representative of others in the gaming industry. 

Looking Strong for 2021?

Gaming, like many other forms of entertainment, is fairly recession-proof, as it provides an inexpensive way of having fun which can be done from home. We saw this during the 2008 financial crisis, where the market continued to grow despite changes in consumer habits. And while several of the world’s major economies are already, or are expected to contract in 2021, gaming companies are expected to fare well. 

What About iGaming?

Like other gaming companies, most of the global iGaming operators saw trends in their stock prices in 2020. These are companies that operate online casinos, poker rooms, and sports betting sites. Their revenues are typically split fairly evenly between the three, giving them good diversification that can weather most economic storms. 

After starting at relatively high levels in January, iGaming share prices dropped sharply at the end of Q1, only to bounce back almost immediately and then rally to record highs. From January 2020 to 2021, several of the biggest publicly traded iGaming companies saw their stock prices double, something they're unlikely to match this year. 

With that said, many are expected to pay out strong dividends in 2021, helping investors share in their success over the last 12 months. 

Are We in a Bubble?

With share prices rising so steeply, many are rightly questioning whether we find ourselves in a bubble. The gaming industry has been here before. In the early 1980s, the North American video game crash occurred when poor-quality titles were rushed to market in an attempt to cash in on this new exciting industry. Then in the 2000s, the dotcom bubble burst, leading to many technology and gaming companies taking a huge hit to their share prices. 

The current situation is different for a couple of reasons. Firstly, the companies in the gaming industry are making record profits. In the 1980s and 2000s, the bubbles were caused by over-excitement about new technologies and investors not taking into account the low profitability at the time. 

Secondly, interest rates offered by banks are at record lows, as are many of the safest bonds. Therefore, dividend-paying companies (and especially the hugely successful gaming companies) offer some of the best returns investors can currently get.

If you’re an investor who wants to receive dividends from your investments into gaming companies, then Microsoft, Capcom, and Activision Blizzard have all done so regularly for several years. 

Where Will 2021’s Profit Come From?

The gaming industry has changed a lot since the turn of the millennium. The traditional form of monetisation, where a publisher would distribute a physical disc or cartridge in exchange for a single payment, has all but disappeared.

While players can still pay for games on discs, publishers have introduced subscription services and microtransactions to help generate revenue for much longer. Some even offer the games for free and make money only from optional microtransactions. 

This is helping publishers to extend the lives of their software. For example, both CS:GO and Grand Theft Auto V are both more than seven years old but continue to see millions of players competing online each month. For Take-Two Interactive, the company that publishes GTA, microtransactions now account for more than half of its revenue. This proportion is expected to continue growing over the coming years too. 


Gaming companies had a successful 2020, continuing a trend we’ve seen for much of the last decade. They enjoy protection from recessions thanks to gaming being a relatively low-cost form of entertainment, which is why they’ve performed consistently since even before the 2008 financial crisis. 

Record profits, driven in-part by microtransactions, are helping to make gaming companies attractive to investors, which is helping to push up their share prices.

By Adam Walker

© 2021 Copyright Adam Walker - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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