Video game publishers are trading at 30x+ earnings multiples and stock prices are at 10 year highs. This mushrooming of valuations and market capitalization is a reflection of publishers’ ability to expand margins, which is fueled by explosive growth in digital distribution and consumption. The shift to digital has spurred growth across the console gaming market, as publishers have benefited from technological advances in hardware, widespread availability of broadband internet and the growing market potential of eSports.
Graph from 2017 Sales, Demographic and Usage Data, Essential Facts About the Computer and Video Game Industry, Entertainment Software Association, Page 14
The transition towards digitalization has increased the shelf life of software titles, as continued engagement leads to higher recurring revenues. Similar to SaaS, this new revenue model is highly predictable and a far cry away from the traditional and lumpy hits-driven model of the past. Analysts’ opinions on the stocks and their growth prospects have been renewed as a result. Is this justified? Our hosted events call on Video Game Publishers explores the measures they can take to continue to grow margins and into their valuations.
For additional insights on what’s happening in the video game industry please view (ATVI) Q2 Sell-Through & 2017 Outlook – Retailer’s POV and (EA) Digital Growth, Mass Effect Weakness, SW:BF2.