Alphabet (GOOG) L is making a splash in the gaming world and setting itself up for a head seat at the eSports table with its new Stadia platform, but will it make much of a difference for shareholders?
While gaming is a huge industry, for a company pulling set to pull in $150+ billion in revenue for 2020, it is hard to envision it as a needle mover. Combined, Electronic Arts (EA) , Take-Two Interactive Software (TTWO) , and Activision Blizzard (ATVI) generate $15 billion in revenue.
The industry as a whole will only equal Google's annual revenue, but with that being said, there are over 2 billion gamers in the world with half of them spending money on the industry. Stadia has the opportunity to put many more eyes on Google and this is one of the few companies where eyeballs equal earnings.
I'm not a heavy gamer myself, but I live with one. I hear a lot about trends, games, skins, DLCs, and complaints. One of the rare times, outside of the need for food, my son surfaces is while he's waiting for a game to download. Sometimes it's fifteen minutes while other times it could be hours. Stadia aims to solve this problem.
By using data centers as platforms, Stadia will provide unlimited processing power. Rather than being stuck to develop at a desk, games can be created not only in a company's cloud, but also in the Google Cloud. The result could unleash creativity for developers while alleviating the concern for scaling and/or long download times.
Playability will also drive the platform. Many gamers interact continuously with others while never leaving their gaming computer. Connectivity is a key social aspect for many multi-player games. Stadia promises ease. If it is present, it should propel popularity beyond platforms like STEAM.
An added area that I'll be watching is game difficulty. If a game becomes too predictable, too easy, then true gamers will walk. If a game is too difficult from the start, newbies will bail quickly out of frustration. If Stadia can introduce advanced machine learning, developers can create a game that continually grows with the skill of the player(s).
With the explosion of eSports, the move by Google makes sense. It is catching a potentially huge shift in the industry while the industry is still in its infancy. The challenges from China will be fierce with Alibaba (BABA) , Tencent (TCEHY) , NetEase (NTES) , and Bilibili (BILI) to name a few. Google might be best served to create a partnership or relationship with a name like Tencent early on. Both companies are behemoths, so neither should dominate the relationship nor feel threatened by the other.
Admittedly this is one of those times when I wish Alphabet would spin off segments, as Stadia is one I would pursue aggressively as a standalone entity. One can dream, but Alphabet doesn't have a history of spinning off or IPOing its pieces no matter how hot a sector. Because of that, Stadia will likely be another undervalued piece of Alphabet.
I see Stadia worth a $15 billion-$32.50 billion immediate bump on the company's market cap with upside of another $50 billion if its introduction is well received. Stadia has the potential to revolutionize gaming and take Alphabet over the $1 trillion hump in the next 18 months.
To circle around to the initial question: Yes, I believe Stadia is enough to make a difference for shareholders. While it is not the only reason to own Alphabet, it's a good one.
I like the stock here and I would be a buyer.