The video games industry now faces fresh challenges from the popularity of digital games, which can be played on other devices such as smartphones and tablets. In order for console manufacturers to succeed in this new competitive environment, they must capitalize on the growth of digital gaming.
World video games hardware, software and digital games, value size versus growth rate 1998-2012
Source: Euromonitor International
Digital games are played by more than half the American population and more than a billion people globally. Digital games on online social networking websites such as Facebook and mobile devices have grown especially popular. Among digital games, online games, facilitated by gaming platforms, have become increasingly popular. Players seem to favor the opportunity to challenge and compete with one another as an individual or as group.
Asia is an especially interesting region, where players spend many hours per day gaming. I am going to present three companies that I believe are great investments going forward.
The first is Zynga Inc (NASDAQ:ZNGA).
Zynga Inc (NASDAQ:ZNGA) develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally. The company provides online social games such as FarmVille, CastleVille, CityVille, Zynga Poker, Words With Friends, Draw Something 2 and some other names. The games are available on Facebook and other social networks, and mobile platforms, as well as through Zynga.com.
Zynga Inc (NASDAQ:ZNGA) is having a hard time right now, and it is hard to believe that everything will be great going forward. Despite all the negative articles you read, I think the stock is worth a gamble.
Zynga Inc (NASDAQ:ZNGA)’s new CEO, former Microsoft Xbox head Don Mattrick has the daunting task of making Zynga Inc (NASDAQ:ZNGA) a money making machine that gamers feel comfortable with.
The second company, Giant Interactive Group Inc (ADR) (NYSE:GA), offers investors a healthy dividend yield of almost 5%. Giant Interactive Group Inc (ADR) (NYSE:GA) is a leading online game developer and operator in China in terms of market share, and focuses on massively multiplayer online role playing games, or MMORPGs. Currently, Giant Interactive Group Inc (ADR) (NYSE:GA) operates multiple games, including the ZT Online 1 Series, ZT Online 2, Giant Online, XT Online, The Golden Land, Elsword, Allods Online and World of Xianxia.
The last company worthy of a look is Shanda Games Limited(ADR) (NASDAQ:GAME) The company is a leading online game developer, operator and publisher in China. Just recently, the company announced that it has entered into a definitive agreements to acquire affiliates providing user and payment platform services from its parent company Shanda Games Limited(ADR) (NASDAQ:GAME) Interactive Entertainment Limited (“Shanda Interactive”).
The company expects to achieve the following through this transaction:
Facilitate the establishment of the company’s mobile platform
Improve the company’s cost structure and earnings per share
Improve the company’s use of cash
Service fees paid to these affiliates represent approximately 21.3% of Shanda Games Limited(ADR) (NASDAQ:GAME)’ total net revenue.
The aggregate consideration for the transaction is $811.5 million, subject to closing adjustments and payable in a combination of cash, deferred payments and settlement of an outstanding loan receivable from Shanda Interactive.
Despite the fair transaction price, I think this is a great deal for investors going forward. The transaction removes two cost components from the company’s cost structure and is projected to improve EPS by approximately 40%-50%.
Final note
The three companies mentioned in this article will reap the fruits going forward. All three are doing what it takes to become a winner. Investors can still jump on the bandwagon and profit from it.
The article Digital Gaming Investment Opportunities originally appeared on Fool.com and is written by Johan Seijkens.
Johan Seijkens has a position in Zynga and Shanda Games. The Motley Fool recommends Giant Interactive Group. Johan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
