Gaming: The future of social interaction
The widespread and profound impact of COVID-19 in people’s daily lives has also had a major influence in global capital markets, with investors making a strong foray this year into themes such as “work from home” and “learn from home,” but a topic that has been relatively overlooked is “entertain from home” even as it is becoming a big part of people's pastime.
Video games are an interesting combination of not only “entertain from home” but also “socialize from home,” and video gaming as an industry is extremely large, globally. There are more than 2.5 billion gamers worldwide who spend in excess of US$150 billion a year. Gaming as a form of entertainment is highly interactive, but also highly social. In the current environment where it is difficult to meet friends at a restaurant or hang out, gaming has been the perfect means of not only entertaining yourself, but also socializing and staying connected with friends and family.
An interesting aspect of gaming that could have real world implications revolves around the concept of “metaverse.” That idea was first coined in the 1992 sci-fi book Snow Crash to describe a virtual reality-based internet with user-controlled avatars. The digital avatars you controlled also varied based on your social economic status and wealth, so it was essentially an extension of the physical world in digital format.
A recent example of that is depicted in the movie Ready Player One, but the metaverse, as it will evolve, will be more than just a virtual reality video game. It will certainly have elements of that, but it will be broader than a game. Venture capital investor Matthew Ball expects it will have elements of persistency and real time. What is likely to happen is that as technology continues to advance, the metaverse will evolve gradually where much of what is happening physically today will move towards a digital realm. There will be companies that are metaverse-first type companies, just like there are companies today that are smartphone-first type companies.
Within the video gaming space, Esports is also a very vibrant segment, with lots of things happening. It takes a lot of skill to play these games and it is also very entertaining to watch, putting them on par with some of the same kinds of elements that traditional sports have as well.
Esports has evolved over the years and some of the most popular games now include Counter-Strike, developed by Valve; League of Legends from Riot, which is owned by Tencent; and Overwatch from Activision Blizzard. Each of these games has nuances to them, but what they have in common is they have huge player bases, huge audiences and they are growing fast. For example, as one of the most popular Esports right now, League of Legends actually drew over a hundred million viewers in its most recent world championship, more than the Superbowl in the United States. That is just how big, popular and global these Esports are.
Given all that is happening in the video gaming space, particularly within the context of the ongoing global pandemic, the market seems to be undervaluing some of these companies. When you look at some of the best performing stocks since the onset of COVID-19 and put them in different buckets, the e-commerce sector and software makers appreciated more than video game stocks, even though they possess some of the same qualities driving outperformance.
Video games are like mini-social networks with sticky user bases. When you dig deeper into a typical video game company, it is really a software company. Games are created on software platforms and game engines are highly sophisticated pieces of software with complex math and physics, yet video game companies do not trade anywhere near the multiples of software as a service (SaaS) software companies and there is probably room for a re-rate in that respect. It is high time for a more permanent power-up!
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