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Some Prices Are Getting Cheaper -- How to Ride the Tech-Deflation Wave

By Taylor Carmichael and Jason Hall – Nov 1, 2021 at 9:00PM

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Technology has radically shifted the gaming industry, and some companies are making a lot of money by giving their games away for free.

One of the major shifts in the gaming industry is the transition to mobile gaming. Software companies are giving their games away for free, and manage to make lots of money doing so. Sea Limited (SE -0.25%) is probably the leading name in this sector, with its highly popular game Free Fire.

In this episode of "The 5," Recorded on Oct. 11, Taylor Carmichael discusses his favorite gaming stock.

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Jason Hall: Inflation is getting all the headlines right now, rightfully so, supply chain problems, rising energy prices, labor shortages, all of that stuff is driving the cost of so many things higher. Taylor mentioned, in our pre-show planning, innovation. So many companies are doing things that are driving down the costs of things, whether it's making things, moving things, or doing things over the past few decades. Taylor, kick us off here. What's a company that's either used innovation to drive down its own costs or maybe makes a technology that helps its customers lower their costs?

Taylor Carmichael: Yeah, I'm going to talk about gaming here a little bit. Gaming has gone through an amazing transformation. When I was a kid, we'd go to arcades and put quarters in machines and play video games and spend a lot of money playing video games. Now I play video games for free. It has gone from an outgoing expense to free, free, free. That's amazing. That's been an amazing change just in my lifetime that video games have become free for consumers and you can download a lot of video games. This is all mobile, basically, some internet, but almost all mobile. That's been a tremendous change in the course of my life that the smartphone, the iPhone has radically changed a lot of things. It's radically changed the gaming industry.

A company at the forefront of this, I think is Sea, ticker SE. Sea, unlike all the big gaming companies here in the States, Sea was started after the iPhone was introduced. They're focused solely on the mobile market. They have the No. 1 downloaded game in the world for a couple of years, I think, called Free Fire. According to App Annie. I actually do not play this game, but it's been a huge game worldwide. It's really the basis of Sea's business model that they've gone from this free game that people play. They made a billion-dollars off this game in a year. It's amazing this whole model has developed this freemium model that you start playing for free, you love the game and you pay money to get better at the game, to get competitive you want to win you put money into it. It's not required, it's not a money-first thing. It's money that is part of the gaming experience.

All the American gaming companies really didn't know how to do this. I think that's why Activision acquired King to get that knowledge. How do we make money from a free game? How do we bring out Call of Duty onto mobile? How do we make money that way? That's why they wanted King, to learn and they're really following in the footsteps of Sea. Sea has a powerful first-mover advantage. They've gone from that. It's like a flywheel that they've gone to providing e-commerce and they're going for providing payments. All of these things are cheaper, faster, quicker. It's an amazing stock on the other side of the world, has done really well in third world, developing economies, it's doing well in Southeast Asia, it's now doing well in South America, it's doing well in India. That would be an example of a company that's using technology to bring things to people to make our lives more fun and it's free and yet they managed to make a lot of money with this.

Taylor Carmichael owns shares of Activision Blizzard and Sea Limited. The Motley Fool owns shares of and recommends Activision Blizzard and Sea Limited. The Motley Fool has a disclosure policy.

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