Investing in ASX gaming shares

Gaming stocks have been the focus of increased investor interest as electronic gaming becomes more mainstream.

4 teenagers playing mobile game

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What are ASX gaming stocks? 

Companies involved in the video game industry and listed on the Australian Securities Exchange (ASX) are known as ASX gaming shares or stocks. This includes companies that produce and distribute electronic games and the software and hardware required to play them. 

Video games have progressed significantly since they first appeared in the 1970s. They can now be played on various devices, from laptops and game consoles to mobile phones. This means people can now essentially play them anywhere, anytime. 

Video game stocks benefit from advancements in technology and the advent of entirely new technologies. Augmented and virtual reality, for example, allows players to immerse themselves more completely in the games. 

The gaming industry is an exciting subsector of the tech industry because of its importance to culture, entertainment and technological advancement. Millions of people worldwide play successful games. Worth an estimated US$436 billion globally in 2022, the video game sector is set to reach US$688 billion in global revenues by 2027.1 

Why invest in them? 

Worldwide, billions of people have access to smartphones, meaning every one of them is a potential gamer. It's no longer a niche interest. Gaming has become a genuine source of entertainment for people of all ages across different consumer segments. 

Mobile games help people while away their morning commute. And the advent of eSports means that some people are even pursuing online gaming as a full-time profession.

And it's not just playing electronic games that people are interested in. The rise of gameplay live streaming shows that people are interested in watching others play, too. 

Companies involved in the gaming industry include games developers, hardware manufacturers, and those involved in publishing and distribution. Each plays an essential role in the video game ecosystem and can have multiple sources of revenue. 

When a gaming product develops a loyal fan base, additional revenue can be sourced from promotional material, downloadable content, sequels, and expansion packs. The gaming sector is growing, with global player numbers estimated to already be over 3 billion.2 

An investment in a gaming stock can provide exposure to a fast-growing and innovative industry, which is set to benefit from ongoing technological advancement. 

Top ASX gaming shares

(ranked by market capitalisation from high to low)

Company Description 
Aristocrat Leisure Limited

Gaming content producer and publisher with operations in casino systems

and games, as well as web and mobile games
Jumbo Interactive Limited

Provides digital solutions to power lotteries, and retails lottery tickets online

to more than two million players 
Ainsworth Game Technology

Designs and manufactures gaming machines that are installed in venues worldwide

Aristocrat Leisure 

Aristocrat is a gaming content and technology company and mobile games publisher. The company offers various products and services, including electronic gaming machines, casino management systems, and free-to-play mobile games. 

It operates across two main segments: casino games, including slot machines, blackjack, and roulette, and its digital business, which offers web and mobile games across different genres. 

The gaming division continues to experience strong earnings growth due to its market-leading position in North America, and higher recurring revenues. This has come despite significant market headwinds and other business obstacles, including supply chain issues and the company's exit from Russia due to the ongoing conflict in Ukraine. 

Aristocrat also invests heavily in design and development to improve its products and grow its business. Over the medium term, Aristocrat aims to continue growing its market share across its key segments and diversify its business to maximise shareholder returns. 

Jumbo Interactive

Jumbo Interactive is a lottery technology company. It helps governments, not-for-profits and charity groups worldwide set up, maintain, and ultimately grow successful lottery fundraising programs. Jumbo claims to take a player-centric approach, utilising its technology and analytics capabilities to craft more engaging customer purchase experiences across various digital platforms. 

Jumbo has held the rights to sell OzLotto and Powerball tickets online since 2005 and runs the website. Active players have increased over the past few years thanks to record jackpots and soaring customer sign-ups. 

The company now boasts more than four million active players from Australia and abroad. It now focuses on replicating its success by expanding into new markets, particularly in the United States and the United Kingdom. 

Jumbo Interactive reported solid growth across all key performance metrics in FY23, with net profit after tax (NPAT) edging up 1.3% year-on-year to $31.6 million. The ongoing shift to digital benefits lottery retailing, helping the company grow revenues and earnings despite challenging market conditions due to high interest rates and cost of living pressures. 

Ainsworth Game Technology 

This fully integrated gaming machine company designs and manufactures its own range of gaming machines.  Ainsworth is involved at each stage of the product development cycle, from design and development to production, installation, service and support. The company earns revenues from selling, leasing and maintaining its gaming machines.

Although it is still headquartered in Sydney, Ainsworth is now a global company targeting the Australasian, European, North American and Latin American markets. Most of its revenues now come from offshore, with North America contributing approximately 50%. 

For the six months ended 30 June 2023, Ainsworth reported total revenues of $143.6 million. This was a jump of 16% over the prior half, driven mainly by higher product sales in North America and Latin America. However, profit after tax fell almost 30% to $4.2 million as hyperinflationary conditions in Argentina caused a significant devaluation in its Argentinian assets. 

Ainsworth anticipates that conditions in Argentina and tighter industry regulations in Australia could continue to create business headwinds in the near term. 

What to look for when buying ASX gaming stocks 

As competitive gaming cements itself in popular culture, investors, consumers, media outlets, and brands are all paying attention. 

The United States has more gaming stocks listed than Australia, including some of the sector's most valuable companies. These include Electronic Arts Inc (NASDAQ: EA) and Activision Blizzard  — which tech giant Microsoft Corp (NASDAQ: MSFT) recently acquired for an eye-watering US $69 billion.

Goes to show how lucrative the gaming industry has become! 

Investors looking to spot the next Activision Blizzard will want to hone in on financial data like how fast a company grows revenues, its total returns, and its product pipeline. Have a look at the strength of the company's fanbase, particularly if it spans multiple demographics. Remember, it's not just teenage boys playing video games anymore — it's men, women, and children, both old and young. 

Like investing in any stock market sector, an investment in the gaming sector involves risk, and requires research. Learning, tracking, and staying engaged is crucial. The growing prominence of the industry makes it an attractive prospect for investors seeking growth. Based on facts and thorough research, deciding which industry players to back should be an informed decision. 

Pros of investing in ASX gaming shares

High growth prospects: The gaming industry is developing rapidly and received tailwinds from the COVID-19 pandemic. Some data indicates that the pandemic accelerated the gaming industry's adoption and subsequent growth. Maintaining player engagement will now be a key challenge for gaming companies.

High margins: Gaming companies often have higher average margins than companies in other industries. Profit margins can be around 90% for hit games with significant opportunities for ongoing revenue from selling virtual goods within digital gaming environments. This compares to margins of about 40% for the average successful console game.

And the cons

Rapid change: The gaming industry can experience sudden shifts with the introduction of new and improved products and the disappearance of legacy gaming systems. Remember Atari? Probably not.

Operational profitability: Trends in gaming are hard to predict, making gaming companies particularly unreliable. Sudden project failures, fan backlashes, and quality issues are not uncommon in the industry. Video games can be costly and time-consuming to produce. And marketing costs have increased in recent years as companies fight for top-ranking visibility in a competitive market. 

Volatility: Gaming shares are a subset of technology shares, which can have high valuations and volatility compared to the stock market as a whole. This means they are often higher-risk investments, with share prices fluctuating considerably over time. This means you should do your research and not invest more than you can afford to lose. 

Are ASX gaming shares a good investment? 

The video game sector has significant long-term expansion potential. The industry benefited from a surge in interest during the COVID-19 pandemic. It is now seeking to retain new gamers acquired during lockdowns. Companies adapting to players' demands and shaping tastes for interactive electronic entertainment should be well-positioned to deliver positive returns. 

Whether Australian shares in the gaming sector are a good choice for your portfolio will depend on your investment goals, risk tolerance, and financial situation. Gaming shares can be volatile and trade at high price-to-earnings (P/E) ratios. Nonetheless, if you are interested in technology and electronic entertainment, gaming stocks may be rewarding.

For investors seeking exposure to the industry as a whole rather than individual companies within it, an exchange-traded fund (ETF) such as Betashares Video Games and eSports ETF (ASX: GAME) may be a good option. Remember that any investment in equities involves risk. You should seek financial advice if required prior to making your investment decision. 

  • Additional reporting: Rhys Brock

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This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. Contributor Rhys Brock has positions in Jumbo Interactive. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive and Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Electronic Arts. The Motley Fool Australia has recommended Jumbo Interactive. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.