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Bank: “Video game spend remains robust”

October 19, 2021

Media analysts from investment bank Berenberg, ahead of a major Video Gaming Conference they are hosting in November, say that the video game market has pulled back sharply in recent weeks, with the average share in their coverage down 13 per cent in the last month and c20 per cent in the year-to-date.

The bank says that these downturns create an opportunity to buy into its key companies, which they believe will continue to outperform expectations (all ‘Buy’-rated).

It lists its ‘picks’ as:

  • Electronic Arts (-7 per cent from highs),
  • Embracer Group (-42 per cent from highs),
  • Frontier Developments (-26 per cent from highs),
  • Team17 (-14 per cent from highs),
  • Keywords Studios (-11 per cent from highs) and
  • Ubisoft (-44 per cent from highs).

The bank reiterates its ‘Sell’ rating on CD Project, “which is flat in the last three months, significantly outperforming the sector”.

The bank reminds clients that on September 10th, a US court ruled that Apple must, by December 2021, allow developers to direct users to external, non-App Store payment systems, thereby circumventing Apple’s 30 per cent take-rate. However, Apple appealed this decision on October 9th, which, if accepted, would significantly delay any changes to the App Store.

“If the original ruling is upheld, it is a material tailwind to mobile game gross margins and adds new tools for player monetisation and conversion. In our view, the above, coupled with the growing number of cases against Apple and Google’s app store policies (detailed in the note), suggest that we are entering a time of deep platform reform that will likely end with alternative payment methods being universally permitted within the App Store, and the demise of the 30 per cent take-rate as a result over the medium term,” says Berenberg.

“Microsoft will allow third-party storefronts into the Microsoft App Store, starting with Amazon and the Epic Games Store, and will not charge any fee on the purchases within those stores (but still charge 12 per cent of purchases through its own storefront). This is another positive step towards a more open gaming ecosystem and adds pressure on the universal, yet arbitrary, 30 per cent take-rate charged by gatekeepers such as Apple, Google, Steam and others,” suggests the bank’s report.

“US consumer spending on video games remains robust: According to Facteus data, US consumer spending on video games grew 11 per cent y-o-y in Q3/2021 (Q2/2021 -6 per cent and Q1/2021 +32 per cent) and remains 50 per cent higher than Q3/2019 also,” adds Berenberg

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