Comment & Opinion

Market view: the state of mobile game investments

Market view: the state of mobile game investments

IG is the world-leading provider of contracts for difference (CFDs), financial spread betting, and the UK's largest retail forex provider. 

It gives retail investors leveraged access to over 10,000 financial markets through its award-winning dealing platform and mobile apps.

The rise of the smartphone has had a clear impact on global markets in recent years, with the prominence of Apple and Google stock a reflection that the major players in mobile now dominate.

In contrast, trading in video game shares has long been viewed as a risk, with spectacular implosions in past years making investors wary.

Add to that the misfortunes of mobile phone manufacturers like BlackBerry, and a consistent view from the market on whether mobile games make for smart investment is elusive.

That said, there is clearly a lot of growth in such a disruptive, emergent sector: SoftBank's acquisition of Supercell alone shows that major investors see huge potential in manufacturers of mobile games.

Supercell - along with its fellow Finn, Rovio - isn't listed, so taking advantage of the success of games such as Clash of Clans  or Angry Birds  isn't yet possible.

Looking at the performance of some of the bigger players who currently sit on various global markets, though, can give some insight into how traders view mobile games.

King (NYSE:KING)

King made the headlines recently after its decision to undertake an initial public offering (IPO), off the back of the tremendous success of its flagship title Candy Crush Saga.

That flotation can only be viewed as a failure, with King stock dropping beneath its initial valuation overnight.

Since then, with apparent admissions that Candy Crush Saga users were spending less money and after some disappointing Q1 results, the stock has dropped yet further: over 15% from its initial valuation by the end of May.

The problems of a misjudged IPO have earned the company some comparisons to Twitter, which has also endured some misfortune since its IPO; shares in the company have dropped to less than half what they were at the beginning of the year.

Twitter versus King

A comparison of Twitter and King share price since King's IPO. Based on IG's CFD index pricing - find out more at www.ig.com/uk/cfd-trading

There is some hope though - with new unique games on the way and the continuing success of Candy Crush Saga many investors are tipping King as a good buy.

Glu Mobile (NASDAQ:GLUU)

On the other side of the spectrum is Glu Mobile, the successful developer of several games including Deer Hunter and Frontline Commando.

Company shares have seen huge gains over the past 12 months, with its share price increasing almost 100% from October 2013 to February 2014.

Since then, performance has slowed and those who invested in Glu at its peak in March would now be seeing losses. The recent acquisition of PlayFirst gives it a pipeline of new games and avoids the lack of diversity that makes investors cautious over King, though, and sentiment around Glu is positive: 10 independent brokers on IG rate the stock a buy.

Gameloft (EPA:GFT)

Another major player in the mobile games industry, Gameloft also had a strong 2013, ending the year with gains in the same region as Glu.

Since then though, the share price has dwindled and at the time of writing is back to the level it was in September 2013.

That's mainly due to Gameloft's failure to meet its revenue targets for 2013, caused by delayed releases and a revision of the company's prospects. So far this year, the release of The Amazing Spider-Man 2 has done little to turn the stock's fortune around, though if Modern Combat 5 arrives on time and sells well we may see a turnaround.

Electronic Arts (NASDAQ:EA)

EA has a major line in mobile gaming (including mobile versions of popular franchises The Sims, Need for Speed and FIFA) and has reported strong financial results; its stock price leapt over 20% recently off the back of a good results announcement.

Once again, the buzzword here is diversification: EA has a strong suite of games, which makes it a popular option. In EA's case though, this diversification goes beyond Android and iOS, which adds to its strength.

The memory of Zynga's poor stock performance over the past few years is hard to shake off and many investors view social and mobile gaming as similar, which makes companies that can predict major franchise earnings from a suite of games more popular.

EA versus Glu

In different ways, King, Glu and EA are all appealing to investors, and mobile is an area of growth that people are eager to invest in. But the prevalence of companies with narrow portfolios and a lasting comparison to the social sphere (which still carries negative connotations) mean that talk of another tech bubble is never too far away.

That can be seen to have exacerbated the poor performance of Gameloft and Zynga recently, as the markets show particular sensitivity to announcements of missed targets and deadlines.

Volatility is both a boon and a burden to traders, and the mixed fortunes of mobile companies can make a good investment hard to predict.

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This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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