Juniper Research is out with a new report highlighting that tablets could be the next big gaming platform. The firm forecasts that tablet gaming could become a USD 3.1bn market by 2014, six times the amount they expect for 2012.
Researchers believe new chips with powerful graphics could drive sales through the roof. In addition, tablets have spacious screens and plenty of battery life, making them a much better choice for gaming than smartphones. The larger screens allow developers to integrate proper on-screen controls, which can be an issue on smaller platforms such as mobile phones. However, their high price is still an issue. Tech enthusiasts are one thing, but few parents are willing to spend USD 500 and more on an oversized toy for their offspring, but cheaper tablets, like the Kindle Fire, Barnes & Noble’s Nook and Google’s upcoming Nexus/Play tablet could change all this.
Although advanced graphics capabilities are key marketing points for Apple’s new iPad and Android slates based on NVIDIA’s Tegra 3, Juniper expects social and casual games to dominate the bulk of the market. That’s an observation that seems sensible given the current state of the top downloads for iOS and Android.
As for tablets versus smartphones and feature-phones, the research indicates that the extra display space makes for more user-appeal in on-screen controls. “Action games also typically feature console-style buttons on the screen” the report points out. “Using this feature on a smartphone often results in an obstructed view of the game, as the user’s fingers can block the screen, but this is not an issue on tablets.”
Needless to say, Juniper’s report is another reminder on the potential for mobile gaming companies such as our top pick G5 Entertainment. Being active in such a high growth market gives the company an enormous leverage on its existing gaming portfolio which has proven to have a life-time of several years. On top of that, G5 Entertainment is very active in developing new games which will further contribute to growth. G5’s CEO Vlad Suglobov has previously envisaged the mid-term goal of reaching revenues of SEK 300m and an EBIT of SEK 100m. In our opinion, it should not be impossible for G5 to reach these numbers by the end of 2014, given the projected market and portfolio growth. As argued before, at these levels a reasonable valuation would be around SEK 150 per share (for further details please see: http://nordicinvestor.net/g5-entertainment/) Our base case is a takeover at some point in the next 2-3 years. M&A activity has been picking up in the app market in recent months and companies like Electronic Arts and Zynga have acquired several smaller developers during recent months.