The video game industry is likely to face a tough 2023 that could see stocks struggle before a resurgence next year, Jefferies said, though special praise was reserved for Keywords Studios PLC (AIM:KWS, OTC:KYYWF).
Companies such as Ubisoft and CD Projekt may face cost rationalisation, game cancellations and later release dates in 2023, the US bank believes.
Keywords, the London-listed video game industry service provider, is rated a ‘buy’ from Jefferies, noting the admiration held for its business model which allows it to work as an external developer for other companies.
While some investors see the company as overpriced, with some larger funds noting issues with the company’s liquidity, Jefferies argued this was avoiding a key difference with the rest of the sector.
“We disagree that it should trade in-line with video game stocks, instead we believe this lower-risk business model should trade at a premium,” the US bank said.
Elsewhere in the industry, Finnish games studio Rovio was also signed out as a ‘buy’ with investors keenly watching for updates on a potential acquisition by Israeli mobile game publisher Playtika.
Rovio owns the Angry Birds IP which, with more than 5bln downloads, could be transferable across to platforms such as TV, seen as a strong advantage for Jefferies.
CD Projekt, the Polish game developer of the Witcher series and Cyberpunk 2077, is also a ‘buy’ for Jefferies as it targets a 16% upside for the stock.
“Some investors believe that its shares trade based on the political environment, and they're looking to add to their position post elections,” Jefferies said.
Ubisoft, which owns game franchises like Assassins Creed and Far Cry, is Jefferies' least preferred stock in the sector, citing the recent cancelation of seven games and pressure from US peers as a reason to ‘sell’.
The French game developer's share price (€20) has dropped by more than half in the last twelve months, partially due to the company announcing a €500mln impairment of its assets in January.
Yet, despite setbacks for the industry in 2023 “investors remain bullish on the growth prospects of the video game sector” according to Jefferies.