In a new report, Jefferies said that addiction is emerging as a potential threat to the gaming industry, and that investors might not be pricing in the risk.
The video game industry is a big business, worth $150 billion, with more than 2.5 billion players worldwide.
When it comes to regulation in the United States, Cerity Partners' Jim Lebenthal said that he isn't worried since Congress has "bigger things to tackle." He owns shares of Electronic Arts. When it comes to regulation in the U.S., which some have called for, Cerity Partners' Jim Lebenthal said he isn't worried. The difficulty in defining what exactly "addiction" means, coupled with Congress having "bigger things to tackle," means he continues to own shares ofThe video game industry has an estimated 2.5 billion active players worldwide, with mobile accounting for nearly 50% of the market.
But while investors are well aware of and focused on regulation when it comes to big tech like the "FAANG" names, Jefferies said that the Street isn't applying the same sort of concern to video gaming stocks. "These issues aren't front of mind or priced-in for some stocks … [we] don't believe that these issues are at all high on investors' list of priorities or concerns for video games stocks.
"In mobile, it's the minority who pay who support the whole industry – and thus if some of the highest spenders were regulated to limit or remove their spend, the industry as a whole would be severely impacted," the firm said. The firm said that mobile games are the most at risk since it's difficult to claim that features aren't designed to keep users playing and spending money. Older, single-player games, by contrast, are physically purchased, meaning that the developer collects some revenue on that game regardless of how long is actually spent playing.
But countries such as China and Korea already have game permitting systems in place. Jefferies said that there are many elements that could potentially be regulated, and that the industry, which has so far enjoyed tax breaks, could start to be taxed like other "addictive" past-times such as smoking, gambling or drinking.
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