More details were offered in February about the 10-year agreement announced late last year between Microsoft and Nintendo (held by the Fund) to make Call of Duty games available on both Nintendo systems and the Xbox on the same day and with “full feature and content parity.” The deal is part of Microsoft’s attempt to convince PlayStation maker Sony to accept the same terms and help alleviate concerns held by EU regulators about Microsoft’s proposed $69 billion acquisition of Activision Blizzard, publisher of Call of Duty.1
UK-based start-up Latent Technology has secured $2.1 million in pre-seed funding to develop its AI-based technology for video game development. The company is part of the “generative AI” technology trend rapidly transforming the tech sector. Latent’s technology eliminates the need for game makers to manually animate every possible movement and action in a video game, which is time-consuming and expensive. Instead, the technology uses machine learning trained on motion capture data to enable video game characters to react to virtually anything that happens in the game but with actions generated by the AI algorithm. Incorporating generative AI into video game production workflow holds the potential for significant cost reductions and faster time-to-market for video game producers.2
And a new report on generational differences in gaming and digital engagement released by Newzoo, a market research firm focused on gaming, shows how Gen Z, Millennials, and Gen X engage differently with different forms of entertainment, including gaming.
While the report finds all three generations spend the bulk of their time in digital activities, Gen Z consumers spend the most time in virtual worlds and playing games, preferring “active” entertainment that requires active engagement (reading material, content creation, game playing) almost as much as passive forms of entertainment (viewing and listening).
As the most gaming-focused generation, Gen Z’s interest in interactive media has significant implications for the future success of ‘the metaverse,’ as games become a conduit for a variety of interactions beyond just play, such as socializing, creating, and collaborating. It suggests that consumer buy-in can no longer be achieved through passive experiences alone and that success can only be had by adding active engagement into the media value chain.3
Updates on Specific Gaming Companies
Activision Blizzard’s Q4 earnings bettered analysts’ expectations in net bookings ($3.57B versus $3.08B expected), earnings per share ($1.87 versus $1.52 expected), and monthly active users (389 million versus 388.4 million expected). These better-than-expected results were driven by recent high-profile releases Call of Duty: Modern Warfare II, Overwatch 2, and World of Warcraft: Dragonflight. Modern Warfare II alone generated $1 billion in sales in its first ten days, while a free-to-play version of Call of Duty called “Warzone 2.0” attracted 25 million players within its first week.4
On the acquisition front, Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard received a boost in February when Microsoft and Nvidia (who had previously opposed the deal) signed a 10-year agreement for Xbox games to appear on Nvidia’s GeForce Now cloud-based gaming service. With Nvidia now supporting the Microsoft-Activision Blizzard deal, it may help address competition concerns expressed by regulators in the US, UK, and EU.5 The deal is expected to close by Jun 30, 2023.
Roblox, the online gaming platform, announced Q4 earnings that surpassed analysts’ predictions on both top and bottom lines. Roblox reported $899.4 million in revenue compared to an expected $881.4 million. The revenue figure, which includes sales recognized during the quarter and deferred revenue, is referred to by the company as ‘bookings,’ and showed a 17% increase in bookings from the previous year. Roblox generates revenue from the sale of its virtual currency, Robux, which is used by players for in-game purchases. The company also reported an increase in average daily active users by 19% YoY, with a total of 58.8 million users in Q4. Users spent a total of 12.8 billion hours engaged in Roblox in Q4, a growth of 18% YoY.6
These better-than-expected results suggest that Roblox may be faring better than other video game makers in the face of a potentially slowing economy. These results also mean that the post-pandemic dip which hit earnings may be behind the company, and that a continued focus on key drivers like sign-ups, retention, engagement, and monetization means Roblox can still grow in a post-pandemic world.7
Investing in Video Games with HERO ETF
Looking to invest in video games? Consider Canada’s first esports and gaming ETF, the Evolve E-Gaming Index ETF (HERO ETF). HERO ETF is an index-based exchange-traded fund that invests in leading video game companies across the globe. To learn more about HERO ETF, please click here: https://evolveetfs.com/hero/.
HERO ETF Portfolio Strategy and Activity
For the month, Sega Sammy Holdings made the largest contribution to the Fund, followed by Wemade Co. Ltd, and Paradox Interactive AB. The largest detractors to performance for the month were Electronic Arts Inc, followed by Nintendo Ltd. and Netease Inc. On the last rebalance, these securities were added to the portfolio: Webzen Inc. and Paradox Interactive AB.
1 Porter, J., “Microsoft Signs Binding Call of Duty Deal With Nintendo Ahead Of EU Activision Hearing,” The Verge, February 21, 2023; https://www.theverge.com/2023/2/21/23608256/microsoft-nintendo-call-of-duty-agreement-legal-eu-hearing
2 Kokalitcheva, K., “Latent Technology Raises $2.1M To Bring Generative AI To Video Games,” Axios, February 2, 2023; https://www.axios.com/2023/02/06/latent-technology-21-million-generative-ai-video-games
3 Kaser, R., “Newzoo: Gen Z’s gaming habits foreshadow the metaverse,” VentureBeat, February 6, 2023; https://venturebeat.com/games/newzoo-gen-zs-gaming-habits-foreshadow-the-metaverse/
4 Garfinkle, A., “Activision Blizzard Results Top Estimates Amid Otherwise Rough Quarter for Game Makers,” Yahoo Finance, February 6, 2023; https://ca.finance.yahoo.com/news/activision-blizzard-results-top-estimates-amid-otherwise-rough-quarter-for-game-makers-202159266.html
5 Kharpal, A., “Nvidia supports Microsoft, Activision merger after Xbox deal to add games to cloud service,” CNBC, February 21, 2023; https://www.cnbc.com/2023/02/21/microsoft-will-bring-xbox-games-to-nvidias-cloud-gaming-service.html
6 Capoot, A., “Roblox Stock Up 26% After Fourth-Quarter Earnings Report Beats Estimates,” CNBC, February 15, 2023; https://www.cnbc.com/2023/02/15/roblox-rblx-earnings-q4-2022.html
7 Neiger, C., “Why Roblox Stock Is Climbing Today,” The Motley Fool, February 15, 2023; https://www.fool.com/investing/2023/02/15/why-roblox-stock-is-climbing-higher-today/
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