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March 2021 investment update

Our March investment update is now available to download.

The cyber security skills gap

The cyber security skills shortage has been making headlines for years, but the Covid-19 pandemic has made it more critical than ever.

Video games

In our Beyond Coronavirus series we discuss changes we are making in our model portfolios in light of how the economy is being shaped by coronavirus. This week we look at video games.

24 April 2020 / Beyond CoronavirusVideos

The video games industry has arguably become one of the most lucrative global consumer discretionary sectors during the Covid-19 pandemic. A trend that initially started two decades ago, has accelerated substantially due to the recent social restrictions placed on global populations. Given that video games are usually played at home and do not require close physical proximity to play with others, the industry is one of the few potential major beneficiaries of the current crisis.

Historically, video games were played in arcade bars as they provided a platform to interact with friends and access a new digital realm. As technology evolved, consumers transitioned to their living rooms and subsequently to mobile devices. It is strange to think that only a couple of months ago, we were playing on smartphones on our way to work or in the comfort of our own homes. The overnight transition to online social interaction and video gaming has become a new norm in connecting 2.5 billion people worldwide. According to Foley and Lardner LLP, mobile games alone, are expected to generate $74 billion in revenue and the overall video games market is set to reach $160 billion, despite the economic challenges that lie ahead.

The industry overall, has enjoyed a spike in popularity in both developed and emerging markets. Traditionally, a video game would have been purchased in physical stores but in recent years, video game publishers have invested into and developed new monetisation systems which now complement the current situation even more. As a result, video games are now primarily distributed online and we have seen this transition accelerate further around the world since lockdowns were put in place. For example, Verizon reported an increase of 75 per cent in gaming traffic during peak hours since the lockdown was first introduced in the US.

Click chart to expand. Source: Steam, April 2020.

Global lockdowns have increased both consumer playing times and also the amount of money spent on gaming. Video games are primarily purchased using online payment methods and monetisation models adapted to instant consumerism. For example, physical packaged products accounted for 29% of revenue last year vs 51.5% in 2015 for Electronic Arts. Live services and mobile segments now represent 66% of the firm’s total revenue. Riot Games generates in excess of 1 billion dollars in annual sales through “micro-transactions” (transactions paid in-game with fiat currency).

As video games have evolved over time and become increasingly focused on mass multi player experience, this has led to the creation of eSports competitions. eSports is becoming a mainstream entertainment phenomenon and is expected to reach an audience of 495 million people white generating $1 billion in revenues this year. eSports major competitions usually take place in physical locations such as arenas and stadiums. As such, major eSport events such as Counter-Strike (CS), League of Legend (LoL) or Dota have been able to adapt and transition to online competitions. As monetisation levels per user have continued to increase slowly, Berenberg reported that video game developers such as Activision Blizzard or Riot Games, were no longer thinking about eSports as a marketing tool but as a potential revenue stream. Subsequently these two companies have franchised their games to mirror the traditional sporting model.

Click chart to expand. Source: Newzoo, April 2020.

To this extent, video games have recently become a major source of entertainment and eSports is now the only sport on television.  As a result, many sporting events are transitioning to this world with the likes of Formula One’s successful Virtual Grand Prix (VGP). This event drew in 3.2 million online viewers alone, with an additional 1.2 million watching on TV. Other traditional sports are looking also to mirror this as it remains uncertain for how much longer large gatherings will be prohibited.

The current lockdown has significantly increased the exposure that we now have with eSports and video games. Today, a large number of consumers are socialising while playing or watching someone else play instead. While this is a trend that we expect to increase significantly over the next five to ten years, we have already seen millions of people tune in to watch an F1 driver drive for two hours in a video game, something which would have been unbelievable only some years ago. We have yet to see if video games and eSports will remain resilient after lockdowns are lifted and whether consumer habits will include these new sources of entertainment for the future.

We first looked at video games as an investment opportunity back in July 2019 and continue to see this as an attractive theme for investors. To find out more about our convictions, key drivers, risks and specific shortlisted companies in our portfolios, visit the video games section in our latest quarterly investment outlook.

Please click here to watch the video.

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Oil market

In this week’s episode of Dolfin Discussions, James Gutman chats to Philipp Advisors’ Andrew Dodson about recent dramatic moves in the oil market including WTI going negative.I

/ 23 April 2020

Q2 2020 Investment Outlook

Welcome to our Q2 2020 investment outlook. As usual, it lays out the latest views, analysis and thematic ideas from our Investment Management team. What’s different this quarter is that, although we have traditionally published this as one standalone – typically printed – document, this time, because of the restrictions we face as a result of coronavirus, we are publishing it as website pages.

/ 14 April 2020

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