Gaming Stocks To Look At As China Cuts Kids’ Online Play Time

Highlights

• Chinese regulator National Press and Public Administration has decided to limit the amount of time children can play games online.
• Gaming companies are allowed to offer games online to minors from 8 pm to 9 pm on weekends, Fridays, and public holidays.
• Following this, the City’s benchmark Hang Seng Tech Index slipped by 1.5% to the lowest level in a week.

Global gaming stocks slumped in China and Japan as Chinese regulator National Press and Public Administration limited the amount of time children can play games online to just three hours most weeks. The sudden restrictions tumbled the world’s largest mobile gaming market.

The regulators signaled that it would carry on a campaign to control the expansion of largest tech companies.  Gaming Platforms can offer online games to minors from 8 pm to 9 pm on weekends, Fridays, or only on public holidays.  Earlier in 2019, China restricted the amount of time spent on online games to 1.5 hours daily most days.

After decline in the American depositary receipts of Bilibili Inc. and NetEase Inc., its share prices fell in Hong Kong and the City’s benchmark Hang Seng Tech Index slipped by 1.5% to the lowest level in a week. The share prices of Bilibili fell by almost 7.2%, NetEase fell by 4.6% while Tencent Holding Ltd share prices slump by 4%. 

The restrictions are likely to haunt investors who had returned to Chinese exchange recently, exploring agreements after ride hailing ignited a trillion-dollar selloff in past month and a raft of regulatory probes into areas from online commerce to data security.

Daniel Ahmad, an analyst at Niko Partners, said that the restriction is the strictest till date and it will eradicate most spending from minors, which was always been extremely low.

In Japan, the share prices of Nexon Co. slump by almost 5% while Koei Tecmo fell by 4.4%. In last fiscal year Chinese market contributed around 28% of the Nexon’s revenue.  However, Tencent and other gaming businesses reported that the revenue from China’s minor yields less that 3% of their gross gaming receipts.

Further, the online gaming platform should be linked to a state anti-addiction system and they can’t offer services to user without real-name registrations. The regulators will keep their eye on the gaming platform and they will closely work with schools, parents and other members to fight against youth gaming addiction.

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Let us now take a look at the top five gaming stocks listed in the London Stock Exchange that you may consider in 2021.

The gaming sector has been in boom since 2020, as the UK was under national lockdown and people were stuck at home. In 2020, the UK’s gaming market was at a record-high value of around £5 billion.

1. Team17 (LON: TM17)

Team 17 Group Plc is UK’s leading independent video game developer. it has launched more than 100 games that are available on multiple gaming platform such as Worms Rumble, the Survivalists, the Escapists and Monster Sanctuary. The company has recently lunched Hell Let Loss, Hokko Life and Super Magbot games. In July 2021, it announced the acquisition of StoryToys for US $26.5 million.

The company’s revenue increased by 34% to £83 million in 2020 compared to £61.8 million in 2019. Its profit before tax increased by 36% to £26.2 million in 2020 compared to £19.2 million in 2019.

Team17’s shares were trading at GBX 790 as of 8:06 AM on 31 August 2021 and it gave one-year return of 14.49%. The market capitalization stood at £1,038.64 million.

2. Frontier Developments (LON: FDEV)

Frontier Developments Plc is a leading independent developer and publisher of video games across multiple platforms backed by its COBRA game development technology. Some of its popular games include Jurassic World, Elite Dangerous and Planet coaster and its third-party publishers include Amazon, Atari, Microsoft and Konami.

The company future titles include Formula1 and Warhammer Age of Sigmar and announced an exclusive IP licence for the Warhammer age of sigmar licence which is expected to release in the financial year ending 31 May 2023.

The company reported revenues of £76.1 million in 2020 compared to £89.7 million in 2019. Its operating profit for 2020 reached £16.6 million compared to £19.4 million in 2019. 

Frontier Developments’s shares were trading at GBX 2,740 as of 8:06 AM on 31 August 2021 and it gave one-year return of 20.32%. The market capitalization stood at £1,093.99 million.

3. Sumo Group (LON: SUMO)

Sumo Group is a gaming holding company operates through Sumo Digital, Atomhawk, Secret Mode and Pipeworks across 15 studios in Canada, the UK, India, Europe and the United States. It is engaged in providing end-to-end visual and development solutions to the gaming industry. Some of its co-development partners and clients include Microsoft, Sony, Marvel and Apple. 

On 19 July 2021, Sixjoy Hong Kong Limited (BIDCO), an indirect subsidiary of Tencent Holding Limited, made a proposal to acquire the entire issued share capital of the company for £919 million (US $1.27 billion).

The company reported revenue of £68.9 million in 2020, an increase of 40.7% compared to £49.0 million in 2019. It registered an adjusted EBITDA of £16.5 million in 2020, up by 17.1% compared to £14.1 million in 2019.

Sumo Group’s shares were trading at GBX 489.50 as of 8:06 AM on 31 August 2021 and it gave one-year return of 164.32%. The market capitalization stood at £838.45 million.

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4. Keywords Studios (LON:KWS)

Keyword Studio Plc is a global leading provider of technical and creative services to the video gaming industry. Its services include Game development, Art Services, Localization QA, Audio Services, Functionality QA, Localization and Player Support. It operates through more than 60 studios located across 4 continents and 21 countries. It serves nearly all the gaming companies such as Microsoft, Google and Electronic Arts.

In April 2021, the company acquired Climax Studios for a value of £43 million. The deal will bring synergies for the Group's strategy of becoming a creative services platform.

On 12 August 2021, Keyword announced that it has acquired the entire issued share capital of AMC RO Studio S.R.L (AMC) to establish its Art Service Line in Eastern Europe, for €2.8 million.

Keyword’s shares were trading at GBX 3,108 as of 8:06 AM on 31 August 2021 and it gave one-year return of 41.69%. The market capitalization stood at £2,350.11 million.

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5. Playtech Plc (LON: PTEC)

Playtech Plc is a world’s leading gambling and financial trading software supplier. The company is engaged in development of software for online sport betting, online casinos, online poker rooms and online bingo games and is a constituent of FTSE 250.

The company’s revenue for the year ending 31 December 2020 stood at €1078.5 million compared to €1440.5 million a year ago. Adjusted EBITDA (including Finalto) stood at €310.0 million compared to €383.1 million a year ago.

Playtech’s shares were trading at GBX 413.00 as of 8:06 AM on 31 August 2021 and it gave one-year return of 12.44%. The market capitalization stood at £1,287.92 million.

Conclusion

In 2020, the world’s gaming market was valued at £114 billion and it is believed that in next five years the market may double in numbers, as per the data released by SG analytics.

The gaming industry now accounts over half of the entertainment market in UK. Not only in UK, but gaming brings more revenue than movies and music together globally.   Thus, gaming stocks can be considered by investors to add in their portfolio as they have future growth opportunities.