Despite the plethora of video game developers out there both big and small, few video game companies end up going public. In an effort to maintain control over their creative process, and with the rise of crowdfunding platforms like Kickstarter, which has been especially beneficial for smaller game developers to fund their projects, there is little incentive for them to go public.
However, a few of the largest video game developers and publishers in the world including Activision Blizzard, Inc. (NASDAQ:ATVI), Electronic Arts Inc. (NASDAQ:EA), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) are public companies, and we can turn to hedge funds to gain insight on their mood concerning the overall industry as video gaming enters perhaps its last console cycle (although we’ve heard that before).
Why hedge funds you ask? Well with their immense analytical departments and ability to predict broad industry trends, they are the perfect investors to emulate. We say emulate rather than invest with, as the fees they charge simply destroy the otherwise positive returns they generate through their top picks.
Note that the following list does not include Microsoft Corporation (NASDAQ:MSFT) or Sony Corp (ADR) (NYSE:SNE). While being of course two of the largest players in gaming, including having their own in-house development teams, the two companies’ gaming operations only account for a portion of their overall business, making them less ideal as case studies for the gaming industry.
Now then, let’s see what hedge funds think about some of the most prominent names in gaming, beginning with their top pick heading into 2015, Electronic Arts Inc. (NASDAQ:EA), which overtook Activision Blizzard, Inc. (NASDAQ:ATVI) during the fourth quarter to become the most popular gaming stock among the hedge funds we track. A total of 40 hedge funds had $1.01 billion invested in EA, up from 38 funds and just $732 million at the end of the third quarter. The large increase in invested capital was partly due to Electronic Arts Inc. (NASDAQ:EA)’s strong fourth quarter, as its shares rose by 31.62%. The stock also had a solid growth since the beginning of the year and is up by 56.18% over the past six months.
While being most well-known for its EA Sports titles, which include the popular Madden, FIFA, and NHL series of games, Electronic Arts Inc. (NASDAQ:EA) has also become a major player in other genres like RPG’s (primarily through the purchase of Canada’s BioWare in 2008) and more recently, in mobile games (where much of its future growth is expected to come from). Philippe Laffont’s Coatue Management was the largest shareholder of Electronic Arts Inc. (NASDAQ:EA) at the end of 2014 among funds that we track, after opening a new 3.71 million share position during the fourth quarter.