now switching gears as companies and consumers worry about a
possible recession. One industry may be immune from an
economic downturn. Video games, that's right. Video
games have historically been a popular sector for investors during
a recession due to people spending more time at home
when the economy is suffering and video games are relatively
cheap form of entertainment that consumers can turn to during
high inflation and high gas prices. So joining now
to discuss is Michael Pachter, managing director of equity
research at Wedbush Securities. And I want to ask
if a recession does happen, how should investors consider
video game stocks? I mean you said it right
there normally quite recession proof and I will say what's
a little different this time is that this is not
a job sessions. So we're probably not going to
have people that are suddenly out of work and find
themselves stuck at home and trying to entertain themselves.
Um, but in contrast, people are fully employed
gamers, you know, depending on the game tend
to be younger. Um, so kids out of
school absolutely gonna play on roadblocks. Um, you
know, younger people fully employed, you know,
anybody who wants a minimum wage job can get one
. So they have more money to spend. And
when you really work through, you know, the
math on what the average gamer spends, it's less
than$1000 a year. So it sounds like a
lot of money, but it's three bucks a day
and, you know, people are going to find
three bucks a day to play their favorite mobile game
, they're going to find 60 bucks at holiday to
play candy crush. I'm sorry to play Call of
Duty. And so you know, I think you're
going to see the video game makers do really,
really well. The publisher is really, really well
. Roadblocks has been suffering mightily of late and kids
are getting out of school now, you're going to
see roadblocks usage spike and little kids, nine year
olds don't even know what the word recession means.
So it's pretty immune and again, we tend to
really entertain ourselves. We've been locked down for a
couple of years. Yes, we are playing games
. Those are habits that are going to die hard
. Um we're going to go outside. So that's
why the release schedule for the big games tends to
be skewed toward christmas. So really everything should be
back into recovery mode by holiday and the publishers are
exposed to mobile like take to um, should thrive
throughout the summer now, like you mentioned during the
pandemic when we were locked down, video games are
really thriving, but during the recession, folks might
reconsider what they want to spend money on. So
if a recession happens, do you think these companies
will see success similar to the levels they saw during
the pandemic or No, no, I think,
I think you'll see a pullback. I mean we
, we nominally we were working and going to school
during the pandemic shelter in place, but you know
, kids were sitting at home the whole time.
So they were probably playing on their phones, you
know, or even on their desktops in between classes
or or even probably during class. That doesn't happen
when you go back to school. It certainly doesn't
have when you go back to work. We've already
seen that decline. That really happened kind of latter
half of 20, first half of 22 I think
now we're back in the normal territory so we're going
to be back to kind of 2019 levels but we
expanded the market so we have a lot more people
playing games and the companies have evolved their business model
. So you know, back in 19 Call of
Duty was a console game only now it's a mobile
game, a free console and pc game and a
$60 premium game apex Legends is on mobile now.
So you know that's an ea game. So we've
we've come up with different ways to play and what
they're doing is grabbing that consumer wherever they find him
whether they're at school or at work, they're still
playing the game. So we were in the growth
path right now but we had to decline in the
second half of 21 1st half of 22 the stocks
got killed. Alright, so the gaming industry is
seeing a lot of consolidations as you probably know,
Microsoft is in the process of perhaps buying Activision and
Grand theft Auto Maker take two. Interactive, recently
acquired mobile game developer Zynga, could this mean more
consolidations could be coming for big name companies like these
? I doubt it. I mean we have to
see what happens with Microsoft and Activision. I think
that the smart money thinks that the FTC is going
to block this because they hate Big Tech. And
the truth is the FTC has no ability to block
a merger that can sue and then it's left to
the courts and the courts are not going to block
this merger. Microsoft and Activision don't have any pricing
power. They're not going to raise prices, the
concessions that the FTC will seek, you know,
don't raise the price of the Xbox and continue to
make Activision's games for the Playstation Microsoft going to say
yes. So that deal is going to go through
once that happens, then we'll see if others get
interested. Um I don't think the media companies are
players at all. I don't think Disney or you
know, a paramount or CBS is going to buy
anybody. Um I do think the tech companies are
players. So netflix may be um Apple maybe google
maybe, but there's really not much left out there
. I mean there's take two obviously and Electronic Arts
and Ubisoft and maybe Nintendo. Those are big mergers
, hard to pull off. Microsoft has a robust
game business. The other guys do not. So
I'd say no, I think maybe netflix will buy
somebody smaller, but I don't think anybody's buying off
, picking off any of the major guys. Alright
, Michael Pachter, Make sure you drop your game
or tax. We can play some apex together perhaps
over the long weekend. Love that. Crazy,
crazy, crazy. I love that managing director of
equity research at Wedbush Securities, make sure to add
him on twitch, following on twitch to for his
streams. Love having you on mike. Thank you --> .