Could Casinos Follow the Fate of Arcades?

Three Things To Notes This Week:

1) Roblox: they raised $520M this week at a $29.5B valuation from Warner Music Group, Altimeter Capital, Dragoneer, and others (CNBC). After pulling their IPO in Q4, they have decided to pursue a direct listing just like Spotify, Slack, and Palantir. Below are a few notes we've written on Roblox over the past year if you’d like to read more of our commentary here:

• Roblox: Key Tenant of the Future of Gaming (May, 2020)
• Roblox: Will it reach over $30B? (Oct, 2020)
• Roblox: Spending habits of kids (Oct, 2020)
• Roblox: IPO breakdown and 3 concerns (Dec, 2020)
  

2) Epic’s New HQ: this week it was announced that Epic Games (owner of Fortnite and Unreal Engine) bought an entire mall in North Carolina to construct a new headquarters (Polygon). They bought the 980k square feet of real estate for $95M, just about 2 miles from their current HQ. Evidently the mall was struggling with vacancies. I expect other large video game companies are being opportunistic and exploring similar options this year to buy up large pieces of real estate. ‍

3) Epic buys compression tech: this week, Epic bought Rad Game Tools who own Bink (TechCrunch). Bink is “a video codec for games that focuses on high compression and speedy rendering, both important in the gaming world.” As Fortnite continues to be the primary source of revenue for Epic Games, they are actively buying technology companies that are accretive to their Unreal Engine platform. In 5 years, I think Epic will look more like a “Fortnite Metaverse”, powered by Unreal Engine’s suite of UGC tools.

Pokémon GO - An Unlikely Beneficiary of the Pandemic

As we’ve mentioned before, video games became a place of solace during the pandemic. An ecosystem that facilitated the social needs of every day people that were hindered by stay-at-home orders. Interestingly, one of the games that became the biggest beneficiary of this was one that required you to go outside: Pokémon GO (an AR game that launched in 2016).

In 2020, Niantic’s Pokémon GO generated $1.92B in revenue (Forbes). The momentum of the first 10 months evidently served as a strong tailwind into the holiday season as they generated almost 50% of that $1.92B in the last 2 months of the year (Sensor Tower).

Oddly enough, Pokemon GO’s momentum during the pandemic was not shared by Minecraft’s AR attempt, Minecraft Earth, which will be shut down in June (GeekWire). The reason for this is likely because for Pokemon GO, you can play by yourself while Minecraft Earth is designed to be collaborative.

To be good at Pokemon GO, you have to explore different landmarks and locations in the real world to find the best Pokemon. This framework seemed to be the perfect storm for people looking for something to do. Players could get out of their homes, explore, and play a game all at the same time. With that, Niantic generated $1.92B, an all time record year for them and far outpacing the $832M they made in 2016 when it launched.

Casinos Will Become Nostalgic, Like Video Game Arcades

The physical arcade venue brought players an experience that people still love to this day, however, the venue changed as traditional arcades have gone the way of nostalgia and are comparable to the last few BlockBuster video stores that remain open. According to AppAnnie, Arcade games drive 42% of total mobile game downloads yet the venue has shifted to a player’s mobile devices to be enjoyed at home, work, and wherever else the player chooses.

According to Statista, online gambling is currently a $59B industry, which is approximately 13.3% of the $443B estimated total global gambling market (European Gaming). Online gambling will continue to grow its share of the total gambling market and this opens up massive opportunities for video game companies entering the real money wagering scene. Online gambling is better than in person gambling as it is easier to monitor and regulate play. We expect our phones and tablets to continue to phase out the flashy Vegas and Macau casinos just as in home consoles and eventually mobile games phased out arcades.