“Stay-at-home” policies boosting online gaming and content businesses

Uncertainties regarding the development of equities after escaping a sizable bottom on hope of an upcoming Covid-19 treatment and a slowing infection rate continue to torment investors as a salvo of deteriorating economic data combined with fears of a drop in 2Q US GDP growth by 30% QoQ, without mentioning the gloomy earnings season, look set to impede further progression beyond current level at first sight. In fact, since the major rebound from bear market territory started 23 March 2020, less than 10 percent of the S&P500 constituents managed to recover fully from the drawdown, suggesting that attractive entry points remain, if selectively picked. Volatility, although holding along March 2020 range, provides signs of respite, as oil plummets in a slow speed economy, hinting that energy companies are not necessarily the best take on grounds of shortened oil demand, inventory glut and potential bankruptcy filings ahead.

Yet in a society where interactions have become rather scarce due to strict containment measures implemented by most regions, gaming and esport platforms have become relevant to maintain interactions with relatives remotely. As suggested by early estimates from US telco company Verizon data analysis of its user base, online gaming activities should have increased by as high as 75%, a rather good news for online gaming and video-streaming services that are intensively used in the context of massive downturn in production activity, job losses and home office.

This is for instance the case of tech company Netease Inc, which provides content-, communication-, community- and business-oriented Internet services and is expected to benefit strongly from its gaming segment while its music and education services should stay supportive in FY’20. With over 75% of its revenue generated through online games (i.e. mobile and PC game portfolios), expectations of online game services revenue growing from 12% in FY’19 to 17% expected in FY’20, combined with a solid pipeline of new game releases, Netease seems well placed to take advantage of the upcoming trend.