Hard to be bullish here imo. All your numbers are obviously correct, but the future will be a lot tougher than the past. Industry growth ex China is basically nil and China is expanding rapidly globally.
Chinese mobile games are the best in the world. Japan had a head start but they are at best third place now, with Korean mobile games routinely being more impressive. China is so far ahead on mobile that they've left the Japanese companies in the dust. Existing games will continue to cash flow but new Japanese hits will be very tough.
Fortunately Nintendo and Capcom don't compete much in this space. But Chinese developers are investing massive amounts into PC / Consoles. A knockoff monster hunter style game from a well funded Chinese studio is inevitable. Marvel Rivals basically copied Blizzards Overwarch and did it so well that their numbers surpassed Overwatch!
I'm a longtime gamer and have a soft spot for gaming companies as potential investments, but currently only own some niche tiny net net like names in the space.
Capcom is one of the strongest players in the space so you are betting on a historical winner and super competent development team. But you pay up for it with the ev/ebit multiple.
Minimal industry growth going forward ex China + meaningful Chinese competition will lead to much slower growth imo. Existing top tier franchises like resident evil will continue to do well and of course there's room to improve monetization too.
Then there's AI risk which is largely overblown for gaming I think. Seems like developers will be the ones to benefit from AI. But if AI lowers the barrier to making games so much, it could devalue premium games. Anyway, just rambling now. Good luck!
Thanks again for the comment - but I do not believe the mobile games is competing directly to the console or PC market. Mobile games is a very though market - and Take Two probably made the worst acquisition in the history of the gaming industry by buying Zynga for 13 billion.
Mobile games is orthogonal to the console and PC market. Its a very different experience. mobile games is competing to console games as much as instagram…in the attention game…
The world dominating consoles are based in Japan - Sony and Nintendo - and I dont see any Chinese foray in this market - console. Owning a platform is very lucrative especially for Sony.
1) IP and brands are dominated by NA and Japan players for the console and PC market. I dont see much foray in the console or PC market from China. I do not believe growth that was seen from Capcom or Nintendo or Sony in the last 10 years would suddenly stop because of China.
Agreed that mobile dominance by Chinese cos today doesn't really effect Capcom or Nintendo. But Chinese cos are expanding to console+PC. Marvel Rivals is the most recent example. Developed by Netease in China, it basically just copied Overwatch (pretty shamelessly too might I add), but is doing well.
Overwatch (Activision Blizzard, now owned by MSFT) just did one of their biggest updates ever and Marvel Rivals on PC and Consoles remain more popular. You can see Xbox's most played list in the U.S.
I suspect the rankings are similar on PlayStation. There is a very real threat of Chinese developers competing more heavily on consoles. Black Myth Wukong was largely a hit in China mostly, but it demonstrated they can make great quality console games.
Agreed that China is NOT a dominant force today or close to it on consoles, but I think the writing is on the wall. Time will tell! Obviously Capcom / Nintendo's revenues won't go to zero, but console/pc revenues are flat lately. In the past they were growing. So industry-wide growth is basically non existent outside of China AND Chinese co's are coming for those ex-china revenues. So we have a combination of stagnant industry + more competition. Revenue growth will at the minimum slow drastically for cos like Capcom/Nintendo. Could begin shrinking in the future too. Nintendo's position I think is most dominant, but Capcom has some solid IPs too.
On the flip side the U.S. of AI by these established gaming companies with great IPs could be a huge boom for margins. This could easily be a massive win for them. While I am bearish, in not bearish enough to be massively short. I have a very small Capcom short that's like 0.4% position.
GTAVI going to be a massive catalyst for Sony. Especially given the release of PSSR V2. Microsoft already rushing into the next gen release leaving Playstation as the best console to run GTAVI. Fairly sure it will be the only place to play at 60fps (on the pro that is. I feel the base will struggle). If anything, it's going to drive sales in the pro. PC release won't be for another year after console release too. Right at the Christmas period too and Sony has had a long standing marketing partnership with Rockstar so there definitely will be some bundles of pro+gtavi coming into the Christmas period. Great write up by the way. Subscribed.
PS5 pro makes the current console PS5 a top gaming platform extending the Life of the PS5 in my opinion. Thanks for pointing this out. As you said the vast majority of GTAVI will be on PS5 and PS5 pro - I would guess 90% plus. GTAV has sold 225m copies and was released 12 years ago - analyst under project the pentup demand when it will be released. What is your estimate of sales in units for gtaVI in the first year? Officially they say 40m ?
GTAV sold 32-34m units in the first four months. 40m would be very conservative imo. Unless the game flops but highly doubtful given r* track record. The common the narrative among gamers this generation is that there has been no games worth playing. They view GTAVI as the saving grace for the industry. Combine that with the loyal fan base of the franchise, I'd say double that 40m est. What's really going to bump Sony bottom line will be the 30% cut they take from the micro-transactions when gamers purchase the "Shark Card" equivalent on the PSN store. Roughly $500m annual spend on shark cards (GTAV basis) that Sony will be taking a 30% cut on. That's pure margin too. I may be over est here because $500m is across xbox, PS, PC etc but you get the idea
It’s possible but I highly doubt it. Switch is not going to be the best place to play, the hardware just isn’t there in the switch to give the best experience for GTAVI. And if it can’t meet the R* standard, they won’t release it on switch.
My timing on Capcom analysis at 3100yen could not have been better: hope some of you tagged along. RE Requiem has sold 5m copies in less than 3 days and is getting almost perfect reviews. It is also reviving the franchise and suspect incremental sales of the catalog. People are rediscovering the franchise. This is big for Capcom.
Hard to be bullish here imo. All your numbers are obviously correct, but the future will be a lot tougher than the past. Industry growth ex China is basically nil and China is expanding rapidly globally.
Chinese mobile games are the best in the world. Japan had a head start but they are at best third place now, with Korean mobile games routinely being more impressive. China is so far ahead on mobile that they've left the Japanese companies in the dust. Existing games will continue to cash flow but new Japanese hits will be very tough.
Fortunately Nintendo and Capcom don't compete much in this space. But Chinese developers are investing massive amounts into PC / Consoles. A knockoff monster hunter style game from a well funded Chinese studio is inevitable. Marvel Rivals basically copied Blizzards Overwarch and did it so well that their numbers surpassed Overwatch!
I'm a longtime gamer and have a soft spot for gaming companies as potential investments, but currently only own some niche tiny net net like names in the space.
Capcom is one of the strongest players in the space so you are betting on a historical winner and super competent development team. But you pay up for it with the ev/ebit multiple.
Minimal industry growth going forward ex China + meaningful Chinese competition will lead to much slower growth imo. Existing top tier franchises like resident evil will continue to do well and of course there's room to improve monetization too.
Then there's AI risk which is largely overblown for gaming I think. Seems like developers will be the ones to benefit from AI. But if AI lowers the barrier to making games so much, it could devalue premium games. Anyway, just rambling now. Good luck!
Thanks again for the comment - but I do not believe the mobile games is competing directly to the console or PC market. Mobile games is a very though market - and Take Two probably made the worst acquisition in the history of the gaming industry by buying Zynga for 13 billion.
Mobile games is orthogonal to the console and PC market. Its a very different experience. mobile games is competing to console games as much as instagram…in the attention game…
The world dominating consoles are based in Japan - Sony and Nintendo - and I dont see any Chinese foray in this market - console. Owning a platform is very lucrative especially for Sony.
1) IP and brands are dominated by NA and Japan players for the console and PC market. I dont see much foray in the console or PC market from China. I do not believe growth that was seen from Capcom or Nintendo or Sony in the last 10 years would suddenly stop because of China.
Agreed that mobile dominance by Chinese cos today doesn't really effect Capcom or Nintendo. But Chinese cos are expanding to console+PC. Marvel Rivals is the most recent example. Developed by Netease in China, it basically just copied Overwatch (pretty shamelessly too might I add), but is doing well.
Overwatch (Activision Blizzard, now owned by MSFT) just did one of their biggest updates ever and Marvel Rivals on PC and Consoles remain more popular. You can see Xbox's most played list in the U.S.
https://www.xbox.com/en-US/games/browse/Popular
I suspect the rankings are similar on PlayStation. There is a very real threat of Chinese developers competing more heavily on consoles. Black Myth Wukong was largely a hit in China mostly, but it demonstrated they can make great quality console games.
Agreed that China is NOT a dominant force today or close to it on consoles, but I think the writing is on the wall. Time will tell! Obviously Capcom / Nintendo's revenues won't go to zero, but console/pc revenues are flat lately. In the past they were growing. So industry-wide growth is basically non existent outside of China AND Chinese co's are coming for those ex-china revenues. So we have a combination of stagnant industry + more competition. Revenue growth will at the minimum slow drastically for cos like Capcom/Nintendo. Could begin shrinking in the future too. Nintendo's position I think is most dominant, but Capcom has some solid IPs too.
On the flip side the U.S. of AI by these established gaming companies with great IPs could be a huge boom for margins. This could easily be a massive win for them. While I am bearish, in not bearish enough to be massively short. I have a very small Capcom short that's like 0.4% position.
GTAVI going to be a massive catalyst for Sony. Especially given the release of PSSR V2. Microsoft already rushing into the next gen release leaving Playstation as the best console to run GTAVI. Fairly sure it will be the only place to play at 60fps (on the pro that is. I feel the base will struggle). If anything, it's going to drive sales in the pro. PC release won't be for another year after console release too. Right at the Christmas period too and Sony has had a long standing marketing partnership with Rockstar so there definitely will be some bundles of pro+gtavi coming into the Christmas period. Great write up by the way. Subscribed.
PS5 pro makes the current console PS5 a top gaming platform extending the Life of the PS5 in my opinion. Thanks for pointing this out. As you said the vast majority of GTAVI will be on PS5 and PS5 pro - I would guess 90% plus. GTAV has sold 225m copies and was released 12 years ago - analyst under project the pentup demand when it will be released. What is your estimate of sales in units for gtaVI in the first year? Officially they say 40m ?
GTAV sold 32-34m units in the first four months. 40m would be very conservative imo. Unless the game flops but highly doubtful given r* track record. The common the narrative among gamers this generation is that there has been no games worth playing. They view GTAVI as the saving grace for the industry. Combine that with the loyal fan base of the franchise, I'd say double that 40m est. What's really going to bump Sony bottom line will be the 30% cut they take from the micro-transactions when gamers purchase the "Shark Card" equivalent on the PSN store. Roughly $500m annual spend on shark cards (GTAV basis) that Sony will be taking a 30% cut on. That's pure margin too. I may be over est here because $500m is across xbox, PS, PC etc but you get the idea
Do you think it launches on the Switch 2?
It’s possible but I highly doubt it. Switch is not going to be the best place to play, the hardware just isn’t there in the switch to give the best experience for GTAVI. And if it can’t meet the R* standard, they won’t release it on switch.
Nice one!
My timing on Capcom analysis at 3100yen could not have been better: hope some of you tagged along. RE Requiem has sold 5m copies in less than 3 days and is getting almost perfect reviews. It is also reviving the franchise and suspect incremental sales of the catalog. People are rediscovering the franchise. This is big for Capcom.