It’s because they’re cool, stupid
There’s been a lot of “what can we learn from Gamestop” articles written that are focused on the psychology of the people that pushed its stock price up to the crazy heights that it is still flirting with. Equally, there has been a lot said about the ethics of the stunt that those Reddit users pulled and What To Do About It.
I’m going to let others figure out the latter, but when it comes to the former there’s one aspect of the situation that I think gets overlooked when people try to overthink this (in an effort to seem smart).
The Redditors that started this and pushed it to the highest point just like video games. That’s all. Nothing deeper than that.
Seriously, there are hundreds of floundering stocks out there. They could have picked any of them. Yet, they picked the place that their grandpa took them to buy FIFA 05 back in the day. It hit them on both a nostalgic level and on a primal level – it sells something they love.
As we all realize, we’ve been stuck inside for the better part of the year. We’re bored. We need to occupy ourselves. That could take many forms, but for many it meant playing video games for hours a day.
And, I suspect, unlike other things that people did during the pandemic, many are going to keep playing a lot of video games after this pandemic is over. No one is going to make sourdough bread ever again, but firing up the PS5? Yeah, that seems likely. Predictable, even.
Before we look ahead, let’s look back:
Worldwide sales of video games 2020, video games totaled $174.9 billion USD. That represented a raise of 19.6% 2019.
Current estimates suggest the rise will continue, with the $189.3 billion expected in 2021. If those projections are true that would translate to sales growth of 8.2%.
As always, Trade with Caution, but if you wanted to have a look at some companies like Activision Blizzard or Electronic Arts right now I wouldn’t think that was a bad idea. Do what you think is best for yourself though.
The reason I think the video game industry is going to hit those projections above is threefold:
1: People bought new systems: The Series X and PS5 are bloody expensive. You’re not going to fork out that money and then let it collect dust. And, unlike that Peloton (NASDAQ: PTON) you also bought you can eat pizza while using it. So, you’re going to buy more games. Everyone is.
2. Your dad is playing again: The Pac Man generation was also bored during the pandemic and, as the original video game kids, they took back to their old habits during the lockdowns. What they found out is that playing video games is still hella fun. Your dad probably has more money than you too, so they’ll buy even more games and gadgets for the games. You might want to give your dad a call as he might even be feeling generous and looking to bound.
3. The year one generation bump: The new systems are only five months old now. We haven’t even seen the best new games that are going to come out for them. Developers are just getting warmed up and the next 12-18 months are going to be exciting. That timeframe is the sweet spot for all new generations of consoles.
There’s also additional factors, like the fact Nintendo is releasing the new Switch this year, that only point to the positives in this industry.
The bottom line though is simple – Video games are cool. They were in the Atari days and they still are today. That’s never going to change and its what makes the industry what it is.