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Gaming industry: How to level up your investments

The video game industry has taken a hit as layoffs have affected multiple companies. Video game stocks like Electronic Arts (EA) and Take-Two Interactive (TTWO) remain down year-to-date, but is there optimism on the horizon for the industry?

Wedbush Securities Managing Director Michael Pachter joins Yahoo Finance to give insight into the health of the gaming industry and what investors need to know when adding gaming picks to their portfolios.

Pachter explains why Ubisoft (UBI.PA) is a Wedbush top pick in the gaming sector: "In that Activision-Microsoft (MSFT) merger, the UK regulators kind of stuck their nose in the middle of all of it, forced Activision to sell the global streaming rights to its content to somebody else and Ubisoft stepped in and astutely bought up those assets for not very much money. I think they're going to get big checks from Microsoft, growing every year for the next several years."

For more expert insight and the latest market action, click here to watch this full episode.

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This post was written by Nicholas Jacobino

Video transcript

As you talk about, the sort of steady revenues from these companies is they're not trading like they're doing well, right.

We've seen most of them see slumps this year.

So what why the disconnect uh because I think that the publishers have recognized over the last couple of years that they can't just throw anything out there that they have to provide really premium content in order to charge a premium price.

And they've spent way too many of their resources expanding the brands.

So having that holistic approach to, to FIFA, which is no longer called FIFA or to Call of Duty, you know, having a, a couple of uh free to play games to augment the premium game.

And so what that means is that the smaller games kind of get left by the wayside and the gaps being filled, you know, by smaller publishers, consumers still want that stuff.

It just doesn't pay off.

So think about it, like the movie industry, we get more Marvel's Avengers and far fewer romantic comedies.

That's what the publishers are starting to reconcile right now that they need to offer big Blockbusters and 360 you know, experiences where you're always playing mobile or, or free to play PC in addition to console Michael and just to follow up on Julie's point, you know, you look at EE A and take two both.

Well, in the red so far this year are those names you want to buy here, Michael.

Yeah, I like them both.

Um, I'd say I probably like take two a little more.

Um, we know that Grand Theft Auto is coming.

It's already been announced that it's coming.

We know it's coming in 2025.

Um Even if the rockstar guys were to, to delay it, it'll be late 2025 early 26 and that is a many billions revenue enhancement.

Um And I think the thing I like about it this time around is that Grand Theft Auto Online, which is the free piece of that game has been built knowing GT A six is coming.

So they'll incorporate GT A six into GT A online.

I think you get a boost to the free to play game in front of the release of GT A six.

So I like take two a lot and uh unlike E A take two bought Zynga, they are well along in, you know, kind of diversifying their, their, their game uh offering into mobile, uh they have a big hit called Match Factory that nobody talks about.

I'm, I'm about $300 into it already.

It's a great game.

My wife is and I'm also curious about Ubisoft, which reports, I think Wednesday it is after the close of trading.

Um, this one doesn't have the sort of franchise like a Grand Theft Auto, uh, behind it, but it's one of the bigger studios here and you guys like that one as well, right?

We do and, and for a different reason, I mean, that you're right that their biggest selling game is maybe 1215 million units compared to Call of Duty at 35 and Grand Theft Auto at over 100.

So, you know, it's a much smaller developer.

Um What we like about it is that they, they've kind of their lack of performance the last five years suggests that they're positioned to really perform well in the next couple of years, they've got a lot of content backed up and about to launch.

So I think you're going to get a big spike in revenue and profitability.

And then the other thing is in that Activision, Microsoft merger, the UK Regulators kind of stuck their nose in the middle of all of it forced Activision to sell the, the global streaming rights to its content to somebody else.

And Ubisoft stepped in and astutely bought up those assets for not very much money.

I think they're going to get big checks from Microsoft growing every year for the next several years.