Delta COVID-19 Variant Sends Jitters Through the Market
The delta variant of the COVID-19 virus is growing. We saw the market’s reaction earlier this month – a 700-point drop in the Dow, making it the worst day since October. Then the market recovered during the rest of the week, finishing off with an all-time high above 35,000. In the medium and long term, we’ll pull away from COVID and everything it has come to represent.
But in the short term, the COVID-19 pandemic is still being resolved. The timeline to full global vaccination is not imminent. We know from last year that cases will grow as the weather pushes people indoors.
So, stay at home orders are likely to return in some countries around the world. In California, a mask mandate has been reinstated to show caution. Those of us looking to preserve our wealth in the coming months would be wise to consider what’s coming next.
The “Re-Opening Trade” is Overbought
That’s right. Many investors declared victory too early. Retail investors, many of them new to investing, have gotten used to chasing short term trends and haven’t experienced the pain of a market crash. The smart money remains cautiously optimistic.
Yes, vaccination programs are moving forward, and they are absolutely making a difference. But the timeline to global vaccination has already stretched to early 2023.
We want our portfolio to be positioned to benefit as the stay-at-home orders are reinstated. Online gaming is a terrific industry to buy into.
Netflix recently announced plans to expand their entertainment offering from movies and TV to include video games. Google has been offering a cloud gaming service called Stadia since 2019 so it’s not a surprise to see Netflix moving into the space. It shows how solid the market fundamentals are in the gaming industry.
While it’s disappointing to see that much of the world will be heading back to stay at home orders, it’s clear that we’ll be returning to the same pastimes as last year. Last year, online gaming filled a gap. It gave gamers a connection to their friends around the world while keeping them safely indoors.
Big gaming companies flourished as a result. EA, Nintendo, Microsoft, Sony, EPIC, and Steam. They all grew like crazy during 2020. According to Morgan Stanley, the video game industry has surpassed global film and music combined. There are an estimated 2.6 billion gamers on Earth today.
Market Size and Industry Dynamics
The market size and dynamics make it look attractive as a candidate for strong growth. Years of strong growth, eSports, AR/VR gaming, and a limited dominant group of tech companies with long operating histories all combine to make this space exciting.
Now, one thing the video game industry has that often elude film & TV executives: long standing franchises. Nintendo has been releasing games featuring that suspender-wearing plumber since 1981 (he debuted in a Donkey Kong game). Sales are still strong, and I’d be surprised if Mario games weren’t still being sold when I die. It’s already a 40-year franchise.
The Marvel Cinematic Universe is an impressive cash cow, but can it last 40 years?
The industry has grown up in a big way, from arcade games to consoles in the home and now to streaming platforms delivering gaming experiences via the cloud. Not to mention how much more immersive the overall experience has evolved to become. AR and VR are set to carry the revolution forward in the coming decade.
With vaccination rates increasing we’re going to put COVID behind us. But we still have some time before we’re fully out of the woods. Many governments will bring back some stay-at-home orders and while people are indoors, they will be gaming. The industry has been hot for a decade and with VR/AR and eSports deepening our relationship with video games, it’s a good time to own some shares in these companies.
Thank you for your loyal readership.
The Financial Star.