ASX-Listed e-Gaming Stocks Show Promise But Are They In The Main Event?

Weekly Reports | Oct 27 2021

By Tim Boreham, Editor, The New Criterion

Ever been invited to a party offering unlimited merriment – back in the times when such gatherings were legal of course - but instead turned up to one organised by the equivalent of an abstemious maiden aunt?

Investors in the fledgling e-gaming sector might well know the feeling. Globally, the industry is booming, with the pandemic only fuelling its growth as bored and/or lonely householders turned to such entertainment.

The ASX-listed offerings to date have not exactly been in the league of Sony, Atari, or Fortnite creator Epic Games, but with the industry worth some $US250bn globally, it’s not one to ignore.

In a potential sign of consolidation in the fledgling sector, mobile games developer and publisher iCandy Interactive ((ICI)) last month splurged $1.59m on a 7.8% stake of fellow games house Mighty Kingdom ((MKL)).

The latest ASX entrant, Mighty Kingdom listed in April, having raised $18m at 30 cents a piece.

Sadly, the stock trades at half that value despite Mighty Kingdom releasing more than 50 games, in collaboration with the likes of Disney, Lego and Snapchat.

iCandy Interactive released Claw Stars in June and followed up this month with Masketeers: Idle has Fallen (which is not a Covid themed game, despite the title).

Animoca Brands demonstrated both the potential – and the disappointment – of the sector in July when it attracted a $US138.8m funding injection, valuing the games developer at $US1.28bn.

Animoca this week doubled up with a further $US65m raising, which lifted the valuation to a cool $US2.2bn.

The disappointment? The ASX delisted the company in March 2020, citing ongoing disclosure problems. Animoca now operates as an unlisted public company and is seeking another bourse to list on.

The new backers, including Samsung and Chinese billionaire Jack Ma, evidently saw something in the company that had eluded public investors.

In its latest report on the Australian entertainment and media industry, PricewaterhouseCoopers (PWC) reckons the local e-gaming market was worth $3.41bn last year and predicts it will turn over $4.9bn in 2025 (a compound annual growth rate of 7.5% between 2019 and 2025).

One third of revenues are derived from microtransactions. This refers to gamers buying the paraphernalia to increase their scores, such as magic swords or racing cars.

The firm expects mobile gaming to be a “major contributor” to the segment as users switch to faster 5G networks.

Rather like an avid egamer, the companies tackle the market with varying tactics and with various degrees of success.

Animoca co-founder and executive chairman Yat Siu sees the future in non-fungible tokens, or NFTs. For the uninitiated – anyone over 40 that is - NFTs are digital coins that confer verified ownership of an asset such as artwork.

There’s been a boom in NFT-based monetisation, with crazy prices paid for ‘artwork’ such as cartoon penguins in sunglasses, or Twitter founder Jack Dorsey’s first tweet which fetched more than $US2.9m (it was autographed, mind you).

In the gaming sphere the NFTs relate to the aforementioned paraphernalia.

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