The One-Stop Shop for Tech Startup Wealth

video game - The One-Stop Shop for Tech Startup Wealth

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Step aside American Idol and Keeping Up With the Kardashians. Step up Instagram and TikTok.

For the first time ever, Americans are spending less time watching television than viewing a mobile device.

Chart showing the increase in minutes per day on TV and decrease of minutes per day on mobile devices since 2013.

Source: Charts by InvestorPlace

According to estimates from eMarketer, American adults spent about 3 hours and 43 minutes per day on their mobile devices in 2019, compared to 3 hours and 35 minutes per day watching television. As recently as 2010, the average American spent 10 times more minutes per day watching TV than fiddling on their cell phones.

Looking more broadly at digital behavior, American adults are spending an average of 6.3 hours per day interacting with digital media. That is more than double the hours they spent online in 2010.

Chart showing the growth of time per day Americans spend on mobile devices, computers and other devices since 2008.

Source: Charts by InvestorPlace

A growing number of adults report being online “almost constantly.” And as anyone who lives in a home with teenagers can attest, “almost constantly” seems to be the norm of the under-20 crowd.

Clearly, the “Screen Time Megatrend” I first identified more than a year ago has arrived … and it’s gaining strength at a rapid clip.

The societal migration from face time to screen time is not simply a fad or generational quirk. It is a megatrend that is already producing major stock market winners.

Like some of the ones I’ll tell you about today.

This Game Is Far From Over

Near the top of that list, we find the leading companies of the video game industry, like Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI), which both recently hit new highs.

Activision Blizzard is the video game developer that we’ve been talking about here since late April. It’s up more than 17% since then, nearly double the 9% growth for the S&P 500 Index.

The esports and video game sector was booming, even before the novel coronavirus pandemic boosted worldwide gaming activity.

According to Newzoo’s Global Games Market Report, 2.5 billion gamers across the globe spent about $150 billion on games in 2019.

Chart showing the growth of gaming revenue on mobile devices, computers and consoles since 2012.

Source: Charts by InvestorPlace

But shelter-in-place orders from China and Japan to Europe and the United States produced a surge in numerous online activities, especially video gaming.

Not surprisingly, every major video game company has reported rising demand throughout the crisis … along with rising earnings.

For its part, Activision — whose video game franchises include Call of Duty, World of Warcraft, Overwatch and Candy Crush — reported a 21% jump in net bookings year-over-year, along with an 18% uptick in monthly active users to 407 million.

Electronic Arts reported even stronger results for the quarter, with a doubling of net income year over year. This company, which is the industry leader in sports simulation game series like Madden NFL and FIFA, said that the coronavirus pandemic was contributing to “heightened levels of engagement and … net bookings growth to date.”

Take-Two Interactive Software (NASDAQ:TTWO), whose big-game franchises include Grand Theft Auto, Red Dead Redemption and NBA 2K, also reported stellar results for the first quarter, with net bookings up 49%. Take-Two management issued nearly identical commentary to EA’s when it said, “With more people staying at home, we have experienced, and are continuing to experience, heightened levels of engagement and live services net bookings growth to date.”

But the coronavirus pandemic did not merely create a short-term boost to video game engagement.

It expanded the total gaming market for the long term.

Video Game Stocks Level Up

The ranks of gamers worldwide increased by tens of millions during the last few months. Now that the worst of the crisis has passed, most of these new converts will reduce their gaming time … but they won’t eliminate it.

During the Tencent Holdings (OTCMKTS:TCEHY) first-quarter conference call, Chief Strategy Officer James Mitchell referred to this phenomenon as a “structural expansion” of the market.

Tencent’s online gaming and social network revenues surged to record levels during the first quarter. Compared to the fourth quarter, online game revenues jumped 35% and social networks revenue increased 23%.

These exceptional gains powered the Chinese internet company’s quarterly revenue and earnings to record levels. Investors cheered the results by bidding the stock to a two-year high.

That’s been good news for the members of Fry’s Investment Report, my monthly investment newsletter. One of the positions in our portfolio owns a good chunk of Tencent.

This company also holds significant amounts of a European online food delivery service, a Russian social networking/email company, China’s largest online travel company and a not insignificant amount of cash.

Most interestingly, it owns tens of billions’ worth of 75 privately held startups.

T0 me, that makes this company a compelling one-stop play for investing in early-stage consumer technology companies around the globe. Owning its stock is like buying a piece of a Silicon Valley venture capital fund filled to the brim with promising global startups, and also a chunk of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) while still in its earlier stages, all at once.

Obviously, not every one of this company’s 76 startup investments will become a shining success, but some probably will … and maybe another Tencent is hiding somewhere in its portfolio. This company is investing in firms that are trying to succeed on the winning side of the Technochasm.

The way I figure it, because Wall Street doesn’t understand the stock, it is trading at a 17% to 26% discount to what it’s worth … right now. That’s not counting future growth.

That’s a good place to be.


Eric Fry

P.S. For two decades, CEOs and Wall Street billionaires paid me millions for trade research and ideas. Over 20 years, the peak highs from my top recommendations averaged out to 93% a year. But I’ve left all of that behind — and invited a small group to follow my work. For that small group, in just 10 months, I uncovered total gains of 987% (including the losers!). Today, I’m inviting a few more people join me. Go here to find out more.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.

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