The gaming industry is on fire this year. Thanks to COVID-19 keeping more people indoors, market analytics company Newzoo forecasts the global gaming industry will grow by almost 20% this year.
This should benefit all gaming companies, including some that might not come immediately to mind as gaming companies. Three such companies worth a look are Tencent Holdings (OTC:TCEHY), Sony (NYSE:SNE), and Microsoft (NASDAQ:MSFT).
Chinese company Tencent does not enjoy as much name recognition in the U.S. as it does in China. However, this conglomerate has grown to a market cap of more than $700 billion.
In China, Tencent is well known for its social media, fintech, e-commerce, and other products in addition to gaming. It bills itself as the "world-leading game development, publishing, and operation platform." The company currently offers more than 140 licensed games. It unveiled more than 40 new games and updates in June.
One of its more notable gaming-related acquisitions is its ownership stake in Epic Games, the developer of Fortnite, which attracts a following of about 350 million players.
Gaming makes up about one-third of the company's total revenue. In the latest quarter, gaming revenue increased by 45% from year-ago levels to 41.4 billion yuan ($6.3 billion). This is well above the 29% increase for the company overall. Profit attributable to equity holders surged by 89% during the period to 38.5 billion yuan ($5.9 billion).
Tencent's gaming growth may slow once the world moves past the pandemic. However, analysts forecast a 32% profit increase in 2021. More importantly, Tencent is a massive media company, and gaming is one of its many growth drivers. As consumers across China and the rest of the world turn to Tencent for gaming and other forms of entertainment, the stock should continue marching higher.
This consumer electronics giant has found success with a wide variety of products over the decades. Now, the recent release of the Sony PlayStation 5 (PS5) could draw renewed interest in Sony as gamers adopt the new system. It is the first new console since the previous generation machine, the PlayStation 4, came out in 2013.
The PS5 will bring faster load times than the previous model. It also includes features such as ray tracing, which improves graphics; and compatibility with 8K displays; and it can play games designed for the PlayStation 4.
Preliminary sales data out of Japan shows the PS5 sold about 120,000 units in its first four days, nearly six times as many as Microsoft's Xbox Series X and Xbox Series S sold in their first six days. However, this is data from only one country and does not account for the holiday shopping season.
The game and network services division made up just under one-fourth of Sony's revenue in the latest quarter, generating 507 billion yen ($4.9 billion). However, this accounted for about one-third of the operating income over that period.
For the quarter, game and network services revenue grew by more than 11% even as overall revenue came in flat. This led to a 65% increase in operating income for that division, compared with 7% for the company.
Upcoming games such as Gran Turismo 7 and Marvel's Spider-Man: Miles Morales will likely help boost its gaming profile.
Some of Sony's other businesses have suffered amid the pandemic, however, once the company gets past COVID-19, the PlayStation 5 could breathe new life into the company.
Given Microsoft's success in cloud computing, the company's gaming segment often gets forgotten. Still, the Xbox has served as a growth area within the company's "more personal computing" division.
Microsoft launched its next-generation Xbox, the Series S/X, earlier this month. Like Sony, this comes seven years after the company released its last-generation console, the Xbox One.
The smaller but less powerful Series S brings with it an upgraded CPU and GPU. It also offers higher resolution than the Xbox One and ray tracing. The more advanced Series X includes an upgraded GPU and more RAM than its Series S counterpart. Like the PS5, it also is compatible with 8K displays.
The new consoles could also bring more interest in Microsoft's games. Driven by franchises such as Age of Empires and Minecraft, Microsoft's gaming library has drawn a substantial following. Gamers can access this library through Game Pass, a subscription service that makes its games available to Xbox and PC gamers. As of the end of fiscal 2020 (in June), Xbox Game Pass had attracted more than 15 million subscribers and nearly 100 million Xbox Live players.
Amid the pandemic, Xbox has seen massive growth. Revenue increased by 30% in the most recent quarter as the public sought more indoor entertainment. Now, with the release of the Series X, gaming could continue to experience significant increases.
Admittedly, the very earliest Xbox sales numbers aren't great and Microsoft's cloud products will probably continue to hold more of an influence on its results. Nonetheless, with the success of Xbox Game Pass, gaming might continue to give Microsoft an extra boost.