Video Game Valuation Impacts of COVID-19 -- Needham & Company

Key Data Points Underlying Our Investment Conclusions Include1 2020RevenueUpside The US video game market is now expected to generate nearly 37B of revenue as of New Zoo39s May 2020 report up 9 yy above approximately 34B of 2019 revenue from New Zoo39s November 2019 report Revenue upside is being driven by more new games sales more ingame spending and more advertising revenue from watching others compete at esports or streamers playing video games while narrating2 PlayTimeImpact Gamers say they spend 3 hours more per week playing video games during the pandemic than they did preCOVID according to an April 2020 Nielsen poll ATVI believes that ingame spending is 90 correlated to time spent playing3 ViewingImpact COVID19 has accelerated the viewing trend away from TV and toward video game streaming platforms such as Twitch and YouTube Gaming to watch others play video games with accompanying narration and chatter US Twitch average viewership peaked in April 2020 and continues to show strong engagement with over 2mm US viewers watching over 16B hours in July 2020 even as lockdown measures were eased according to Twitch Tracker4 EsportsImpact Esports competitions have experienced increased engagement owing to the pandemic Monthly viewership of esports competitions is expected to reach 35mm growing 15 yy according to a July 2020 study by eMarketer A May 2020 survey by CivicScience found that 10 of US respondents ages 1824 started following esports events after the top US sports leagues canceled their seasons5 Betting Esports competitions comprised the majority of wagering during the pandemic when live sports were dark in 2Q20 In fact esports betting attracted 20x more customers vs prepandemic levels and 40 of esports betters had never placed a bet on esports before according to Odds Matrix6 Stocks In this report we quote EA ATVI TTWO ZNGA GLUU MSFT and NTDOY executives from their June Q earnings calls about how COVID19 is benefiting their businesses All video game executives attributed increased engagement and raised financial guidance at least in part to COVID19 We believe many of the same fundamental upside drivers also benefit their business models longer term Our favorite stocks in the video game space are EA and ATVIKey Takeaways From this Report1 EA39s player acquisition in Madden NFL 20 and FIFA grew 140 and 100 yy respectively during the June quarter2 ATVI39s player base grew 30 yy and time spent playing games grew 70 yy driven by time spent playing Call of Duty up 8x yy during 2Q203 MoreHoursPlayed Gamers spend almost 3 hours more per week playing video games during the pandemic than they did in 1Q20 preCOVID according to an April 2020 Nielsen poll4 USVideoGameRevenueGrowth Rate will be Nearly 2x normalized levels in 2020 owing to COVID19 lock downs according to Statista estimates5 Advertising US video games are projected to generate 16B of revenue in 2020 up 23 yy according to a July 2020 study by eMarketer driven by elevated viewing levels For example StreamLabs estimates that 2Q20 viewing hours exceeded 75B hours up 97 yy in Q2 3920 Americans spent almost 2 hours per week watching other people play video games in March 2020 according to Limelight Networks6 Twitch39s average viewer base is up 73 yy during COVID19 and Twitch experienced the highest number of average concurrent viewers in its history at 25mm in April 2020 up 56 mm according to Twitch Tracker7 YouTubeGamingLive39s average concurrent viewership is at an alltime high increasing 155 qq8 FacebookGaming experienced a 371 increase yy in the number of unique channels it offers in Q2 3920 in part because it merged with Microsoft39s Mixer platform9 Esports According to an eMarketer July 2020 report monthly viewership of esports competitions is estimated to be 35mm in 2020 up 15 yy driven in part by 15 of respondents saying they watched esports competitions in lieu of live sports during 2Q2010 EsportsBetting Since the beginning of March several bookmakers say they have seen their esports betting volumes grow 40x the average 41 of players who did not place bets on esports are now esports betters according to a May 2020 report by Odds Matrix A ProdegeMR survey from April 2020 found that 36 of UK gamblers had bet on esports in the past last three monthsLink to full 15page report with disclosuresClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNet

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Video Game Valuation Impacts of COVID-19 -- Needham & Company

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