As we approach the Christmas holidays, gaming stocks are set to enjoy increased sales throughout December. They have already seen enormous boosts in demand throughout this year. Because of multiple lockdown periods, everyone has been stuck at home. Thus, game development studios have seen a massive surge in player activity and game purchases.
How has lockdown affected gaming stocks?
Japanese gaming company Nintendo has seen its profits tripling. Its rival Sony has released a new console – PlayStation 5 – which has been selling out across the country.
The popularity of games has been rising around the world. But the UK has experienced one of the most significant boosts. According to the Interactive Software Federation of Europe, the average time spent playing games per week has increased by 16% compared to a year ago.
Time spent playing video games did see a slight decline in June as the first lockdown was lifted. However, with school being cancelled, and kids stuck at home, gaming remained immensely popular.
This is undoubtedly a temporary boost to the sector since schools and offices eventually reopened. But it is not unreasonable to assume that many new players were introduced to new consoles or games during the lockdown period.
Subsequently, I think it’s very likely that the growth of the gaming industry has had a permanent boost – especially since Christmas is just around the corner.
A gaming stock opportunity for the Christmas holidays?
All of this is excellent news for the British gaming stock Frontier Developments (LSE:FDEV). Frontier is the mastermind behind many popular titles – including Elite Dangerous, Planet Coaster, Planet Zoo, and Jurassic World Evolution.
The company takes a “launch and nurture” approach to its games. In other words, after a game has been released, the studio continually adds new content to keep the community engaged. This approach to business has allowed its leading titles to continue generating revenue long after their initial release date.
The strategy seems to be doing the trick. Elite Dangerous, Planet Coaster, and Jurassic World Evolution were released in 2014, 2016, and 2018, respectively. Yet collectively, they represented over 60% of 2020’s revenue stream due to ongoing sales on new platforms, as well as paid expansion packs.
Future performance is looking promising.
Frontier is expecting total revenue between May 2020 and May 2021 of between £90m and £95m. If achieved, this represents a potential 25% increase compared to the year before.
Guidance should always be treated cautiously. But given what is in the 2021 pipeline, I believe that might be quite a conservative forecast.
Elite Dangerous is getting a new expansion pack, Planet Coaster, which has sold over 2.5m copies on PC alone, is coming to PlayStation and Xbox, and Jurassic World Evolution with RollerCoaster Tycoon 3 is being released on Nintendo Switch.
A gaming stock worth owning for the Christmas holidays?
Beyond these releases, Frontier has already secured new IP licenses for both Formula 1 management games from 2022 onwards, as well as Warhammer Age of Sigmar in 2023.
The studio’s ability to renew existing titles while developing new ones, all without having to rely on third-party publishing, is an exhilarating prospect for me. I’ve only been a shareholder for a couple of months, but I’m not going to be selling any time soon.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Zaven Boyrazian owns shares in Frontier Developments. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.