Product and Service
Companies included in PC& mobile online game (China) sector in toys& gaming industry primarily develop, operate, and license interactive online entertainment content and services on personal computers and mobile devices earning revenue on basis of item.
Demand for Product and Service
As indicated by the typical company data, the demand for online PC games (China market) has been declining and demand for mobile games has been increasing in the past three years. The increased demand has also been driven by macro-economy recovery and larger pool of players brought by the expansion of gaming platform into smart phone.
Sector’s Current, Trend, Causes behind trend, and Future
Current and Trend
It seems that, while new game release time (console games especially) has impacts on performance of game companies, generally the demand for interactive gaming has been strong and gradually growing in the past three years.
Sales’ shifting from physical retail channel to digital retail channel and online service has been apparent as indicated by the fact that there is a more apparent decrease in sales of console software in games stores but in sales of consoles.
Demand based on console platform has continued strong and grown and demand based on PC platform has declined (it is more apparent in China market).
Demand based on mobile phone has increased quickly. However, mobile game companies have to share growth with their mobile network partners and thus have not been able to fully capitalize the quick growth in mobile game players.
The sales’ shifting to digital sales channels, which have usually higher margin, help, to some extent, improve companies’ profitability in the past three years.
Demand from emerging market has grown fast driven by the quick increase in demand for mobile products. However, shorter cycle of life in mobile games (thus higher relative costs and lower margin) increases risk for companies’ development failure of mobile games.
Causes behind the trend
Generally, the demand for gaming entertainment has been growing driven by macro-economy and income factors. This is particularly true in developing countries.
Shifting of sales to digital channels may be consistent with and influenced by the same factors as those behind unfavourable retail industry climate.
Increasing popularity of mobile phone gaming may help expand players’ segmentation and bring absolute increase in number of players.
The decrease in playing of PC games may be because of users’ shifting to mobile games.
As upward trend in this industry continues, companies may be able to continue to see growth in their revenue as macro economy recovers gradually and mobile game increases popular. However, they will also have to facing shrinking players of PC based games.
General Financial Performance of Companies In the Sector
It seems that the demand (china market mainly)for online PC platform-based gaming products provided by companies in this sector has been declining quickly in the past several years as indicated by more than 20% annual decrease in organic revenue of PC game according to the typical companies in this sector. The decline seems to be a result of decrease in both active users and paying users. At the same time, demand for online mobile games has been growing during the same period of time. Companies’ revenue from their mobile products has been seen increasing quickly in 2018.
However, as companies increasingly rely on revenue of their mobile products, the shorter cycle of mobile games creates huge challenge and risks for current game companies in terms of conducting marketing strategy, allocating profit with network and mobile partners, saving costs, and improving efficiency. Their profitability has been facing pressure. The typical gross margin is about 72%, SG&A is about 19%, R&D is 23% and operating margin is about 31% in 2018. The typical enterprise cash flow/EBI ratio is 16. The average annual increase in EBI/share was flat in the past two years.