Video Game Industry Market Size Forecast
Introduction
The Video game industry has been a booming industry for decades. The industry hit 168 billion dollars in 2020 which is a 14% CAGR growth from 2016 levels. The number of games on the Steam platform grew from 100 in 2006 to over 30000 in 2020. The growth train still has legs to run. Growth avenues such as female gamers, smartphone penetration, emerging market spend spread, esports and diminishing age related spend declines should help the industry maintain an 11% CAGR growth for the next 20 years. Thus, making stocks selection in this industry rather attractive especially as gaming stocks have been put in a bit of a downturn recently due to the reopening trade.
Nerd Down
Using the Roundhill (NERD) ETF as a proxy for the gaming market the ETF is down 33% from the 52 week high of 39 reached in March of 2021.
This is most likely due to the slowdown of growth because of tough comps. And maybe gaming stocks getting a little ahead of itself. At its peak (NERD) was up 140% above pre covid highs over the course of just one year. However video game sales have continued to increase even with tough comps. For example, June sales were up 10% year over year.
However when we look at individual companies it’s a wash. Take Two Interactive declined year over year in their Q2 FY21 Revenue figure by around 2%. However Activision is up 18% year over year in the same time frame. Below is a list of gaming stocks and their recent year over year sales growth.
| Company | Q2(YOY) 2021 | Q1(YOY) 2021 | Q4(YOY) 2020 | Q3(YOY)2020 | Q2(YOY) 2020 | Q1(YOY) 2020 |
| EA | 6% | -3% | 5% | -14% | 20.6% | 12.03% |
| Activision | 18% | 27% | 21.5% | 52.4% | 38.4% | -2% |
| Take-Two | -2% | 10% | -7.5% | -1.8% | 53.8% | 41% |
| Capcom | 104% | 17% | 23% | 13% | 32% | -18% |
| Square Enix | 1.8% | 10.2% | 17.4% | 27% | 63% | -20.8% |
| Ubisoft | -17.4% | 4.2% | 131% | -1.3% | 17.5% | -6.9% |
| Konami | 29.2% | 15.8% | 5.3% | -2.2% | -6.3% | -.03% |
| Median | 6.3% | 10.4% | 17.3% | -1.9% | 32.2% | -2% |
If we ignore Capcom’s 2021 Q2 number which is high due to a major new game release, growth has slowed since peaking in Q2 2020. Considering Covid pulled forward by my rough guess around 1-2 years of growth I think we should continue to see slowing in sales growth. Which should correspond to more stock declines. However the longer term picture I think is still quite rosy so this next year could be a good buying opportunity as stock prices for video game stocks cool down.
Longer Term Picture
Smartphone Penetration
There are currently 7.8 billion people who inhabit planet earth 3.5 billion of which have a smartphone or 44% of the population. Mobile gaming has become the most popular way to play games and so smartphone growth is key for video game sales to continue. 2.8 billion people play mobile games so the mobile gamer to smartphone penetration is 80%. The US has one of the highest smartphone penetration rates in the world at 83% well above average. China’s penetration is only at 63%, India is at 32% and Brazil is at 51%. Below is a list of 20 of the biggest countries and their smartphone penetration rate.
As the world keeps buying smartphones the world should converge to the US’s penetration rate. If the world gets to 60-70% penetration and 80% convert to mobile gamers that would add another 1 to 1.5 billion gamers to monetize.
Female gamers
According to the American Time Use Survey women in the US spent on average 16 minutes a day playing video games that’s up 33% from 2003 driven by a higher percentage of women playing. This is still less than half the male population average of 36 minutes a day. If we look at people who actually engage in the activity of gaming and not just the entire population Men spend on average 2.68 hours playing while women spend 1.58 hours playing which is 41% lower than Men. Using this data we can infer that men make up more than twice the gaming population. Statista estimates the distribution to be more like 55-60% male to 40-45% female but the American Time Use Data seems to point to a larger disparity. We can assume that play time probably correlates highly with spend which is backed up by ESA data, males purchase more games than females – 61% vs 39%. As the spread tightens in play time this represents another growth area in the video game market.
The Aging Millennial
The average age of a Millennial is 32 Years old and only getting older. Millennials lie in the group with the second largest playtime in the US behind Gen Z.
Millennials and gen Z grew up playing video games. Baby boomers and Gen X had no such devices when they were growing up. Habits formed while young tend to be sticky later into life. I’m willing to wager that as millennials and gen Z move through the age groups, time spent on games decline less severely than currently and when Millennials finally retire, time spent could trend higher in the 65 years and older age group. This is backed up as millennials and Gen Z took over the 15 to 34 age group play time has exploded. Gen Z represented by the 15-24 year olds has doubled from 38 minutes to one hour. And Millennials represented by 25-34 year olds have almost tripled going from 12 minutes to 33 minutes.
The older generation’s playtime hasn’t moved by as much magnitude as the younger generations. This playtime dynamic is also correlated to spending as Millennials on average spend the most on video games at $112 a month with Gen Zers at $92 and Gen X at $59 a 50% drop from Millennials. This means that the younger generations have contributed a far greater share to the past decades of video game spending growth than the older by wide margin.
As Millennials and Gen Z move through the age groups, declines on average spend due to age should moderate while new generations should match or exceed the current Millennial and Gen Z average spend. This will be another big boost for the video game industry.
Global Spend Spread
Average spend per gamer is much higher in developed markets than emerging markets for example the US average spend per gamer is $173. The US is almost three time the global average which is only $60. Below shows average spend per gamer in top gaming markets.
| Country | Number of Gamers | Total Market Size | Average Spend Per Gamer |
| USA | 244mm | 42.107B | $173 |
| China | 665mm | 44.263B | $66 |
| Germany | 34.8mm | 6.084B | $174 |
| Japan | 70mm | 20.615B | $294 |
| South Korea | 35.7mm | 6.6B | $188 |
| India | 365mm | 1.210B | $3.32 |
| LATAM | 252mm | 6.1B | $24 |
| Indonesia | 170mm | 1.1B | $4.4 |
| South Africa | 39mm | 267mm | $6.84 |
| World | 2.8B | 168B | $60 |
This spread between the world and developed markets is quite large and represents another opportunity for growth in the video game market.
Esports
Not only is playing games booming but just watching it is also growing fast. Esports viewers hit 23.9mm a month in 2020 and are expected to grow quickly for years. Video games could be hitting the Olympics soon as Konami and the Olympic committee have partnered to host an online competition of Konami’s eBaseball Powerful Pro Baseball 2020. As esports start to develop the same level of viewership as real sports I think this will boost player rates and spending.
Estimation of the 2040 Market Size
We all know that future projections are usually complete nonsense. With that said I’ll prepare a 2040 video game market size below. I’ll use Number of Smartphones and average spend for the estimation.
2040 Video Game Market Size
| Smartphone Penetration | 65% |
| World Population 2040 | 9.16B |
| Smartphone Users | 5.95B |
| Gamer Penetration | 80% |
| Gamer Population | 4.76B |
| Average Spend per Gamer | $261 |
| Total Gamer Market | 1.242T |
| 20 Year CAGR | 11% |
| 40 Year CAGR | 5% |
| Average Global GDP Last 10 Years | 2-3% |
I assume Smartphone penetration will get to around the US average of 70-80% and gamer penetration stays around the same. The most aggressive assumption is the average spend per gamer hitting the inflation adjusted US average in 20 years. However Japan is already around this target and the most developed markets will probably grow faster than inflation. However I do include a 40 year CAGR just in case it takes longer. I’m projecting somewhere between 5-11% CAGR over the next 20-40 years. This growth is 2-4 times the GDP growth of the world over the last 10 years. Video games represent a long and high growth opportunity for many years ahead. In my next article I’ll write about individual stock picks that I think are attractive.
