Convergence between the NFT and Gaming Industries is Fueling New Investment Opportunities
Retrospectively assessing the trajectory of the NFT market over the past few years, 2022 will be remembered as the year that the red-hot frenzy for digital assets hit the brakes. Trading of NFTs hit record highs in 2021 thanks to global hype around the metaverse combined with the impact of the COVID economy on consumer preferences. However, as equity markets fell from November 2021 highs and consumer spending was increasingly pinched due to rising inflation against the backdrop of a challenging macroeconomic environment, trade volume for NFTs on OpenSea, the leading marketplace for their exchange, plummeted accordingly. As we enter 2023, it’s time to take a fresh look at how companies are generating long-term added value around NFTs and what types of investment opportunities this ushers in.
When it comes to long-term value creation for NFTs, the digital gaming industry holds great promise. According to a research report issued by PwC in June 2022, “Global video games and esports revenue totaled US$215.6bn in 2021 and is forecast to grow at a 8.5% CAGR to US$323.5bn in 2026.” That is a massive TAM with a robust growth forecast for at least the next few years that holds the promise of reviving how NFTs
Zooming in on how NFTs fit into the bigger picture, a recent analysis from S&P Global Market Intelligence’s team evidences how they are becoming a core element of next-generation gaming platforms. Their analysts project that in-game usage of NFTs is liable, “to grow at a 33.5.% compound annual growth rate through 2027 to $15.46 billion as more games with NFT mechanics come to market and attract a wider player base.” Their modeling suggests that by 2025 in-game NFT revenue will exceed highs witnessed in 2021, with gradual yet sustained YoY growth through 2027. While NFTs have lost appeal as an intrinsic store of value, their increasing embrace by the multi-billion dollar global gaming industry shows how they are being used as a vehicle for the creation of long-term shareholder value. The report further notes that NFTs are making up a gradually bigger chunk of in-game purchases, signaling a clear avenue of monetization for companies moving forward.
A number of companies big and small have already begun to make strategic moves in order to leverage the convergence underway between gaming and NFTs. Roblox (NYSE: RBLX), the $25bn darling of the gaming industry, announced in November that the company is, “taking measured steps forward to introducing Web3 features into their product.” This complements their prior introduction of other Web3.0 features such as a cryptocurrency payment functionality in order to maintain its competitive edge within the highly dynamic and competitive gaming industry.
Sony (NYSE: SONY), creator of PlayStation, also unveiled an NFT integration strategy just last week. According to reporting, Sony filed a patent for an NFT framework that, “aims to integrate NFTs into gameplay, wherein the technology can represent skins and other popular in-game functionalities.” With a market cap in excess of $100bn and rights to one of the most popular gaming systems ever released, Sony’s pivot to NFTs further testifies to convergence between the worlds of blockchain-powered assets and more traditional digital gaming infrastructure.
A number of more agile new-entrants to the field are likewise working to disrupt the NFT-gaming space from the bottom up. A leading example is the NFT Gaming Company (NASDAQ: NFTG), which recently pursued its initial public offering (IPO) on February 15th, 2023. NFTG is set to release its Gaxos gaming platform, which is specially designed to facilitate full-scale integration of NFT skins and accessories for game play. In the company’s own words, “Gaxos is a constellation of casual, multi-genre games connected by NFT technology.” As the platform approaches its official release date, NFTG has issued a number of updates about additional steps the company has taken towards integrating AI solutions in order to enhance users’ overall NFT-gaming experience. For investors in the digital assets or gaming space, NFTG’s current share price is considered significantly undervalued pending the future release of Gaxos with an attractive entry price in the <$1.50 range compared to RBLX and SONY’s significantly higher share prices to date.
One last company NFT-gaming investors should keep an eye out for is Ultimax Digital Inc., a private company that has reserved the NASDAQ symbol NFTU in anticipation of a future IPO. In 2021 amidst the NFT glut, Ultimax expanded its business model to include a built-in NFT marketplace as well as infrastructure for developers to integrate NFTs into games. In a January 2023 article, Renaissance Capital noted that Ultimax, “plans to raise $8 million by offering 1.9 million shares at a price range of $4 to $5.” An official IPO date has yet to be announced for NFTU’s initiation of trading.
In sum, after the dramatic drop-off in NFT trade volume from November 2021 highs, the market is reorienting towards integration with other booming industries such as digital gaming. With robust growth and sales forecasts through end-decade, this hybrid industry is bracing for potentially explosive growth over coming years. The competition is already heating up, with established players like Roblox and Sony vying for market share with newer companies like the NFT Gaming Company and Ultimax. While this is not investment advice, I for one am long and bullish regarding the ongoing convergence between the red-hot NFT and gaming industries.