Samantha Greenberg’s tech bets from the 8th annual CNBC and Institutional Investor run Delivering Alpha Conference. – See more of our coverage here.
Q2 hedge fund letters, conference, scoops etc
Samantha Greenberg's Tech Bets
[00:00:00] Sam Greenberg: There used to be a hit driven business high to new game releases. Today because gaming consoles are connected to the internet video game developers can continually offer extra content like expansion packs, content refreshers, special event and tournaments. This extra content means games are being monetised long after the initial purchase of the game.This business model transitioned from one of game sales to multi year monetisation is very similar to the transformation that software companies underwent from one off license sales to recurring software as a service model. So you can think of this gaming evolution model as gaming as a service where the initial purchase of the game is just the beginning of its monetisation.
We believe this industry shift towards a recurring revenue model will further expand valuations. The most significant future opportunity for video game developers is cloud based streaming of video games where there’s no need for a physical console like an Xbox. The technology already exists for video games to be streamed to a smart television but the gamer needs to be located near a data centre in order to avoid latency.
Within the next three years as fibre is more densely deployed on broadband networks we expect a stream of games to become a commercial reality. And once consumers don’t need to buy a $400 console the addressable universe for video game developers expands dramatically from today’s console and install base to the hundreds of millions of owners of smart televisions globally.
The industry is just beginning to unlock the value of e-sports. Esports is people watching other people playing competitive video games. This esports audience is so much bigger than you think. 2-3 times more millennials in the US watch esports than any of the US big four professional [inaudible 00:02:02]. 58 million people watched the League of Legends final tournament versus 26.5 million people watched game 7 of the NBA finals.
And the live audience for the video game live streaming website Twitch already exceeds the live audience for major television networks like CNN and MSNBC. The video game developers are you can see from the chart on the right are just in the early stages of monetising esports. We believe esports advertising and live streaming rights can be a meaningful driver over the next few years.
So now that we’ve explained why we’re so bullish on the video games sector let’s talk about the stock that we think has the greatest upside, Take Two. When you buy Take Two you are getting best in class content creation, industry leading growth and a compelling valuation relative to the peer group. As you can see on this slide Take Two’s Rockstar Studio games have the highest game review scores of any game studio. Take Two only releases games once they are at the highest quality and therefore at the highest probability of success.
LIke the industry Take Two’s sales are becoming more recurring, driving a more predictable and valuable earnings stream. Take Two’s content pipeline looking at the next couple years is the largest in the company's history. This content pipeline, combined with Take Two’s growing recurring revenue base means Take Two will generate the industries highest growth over the next few years.
Read the full article here.
