View from the City: the outlook for struggling gaming stocks

The UK, European and North American stock markets have provided good positive returns of 5%, 8% and 13%, respectively, year to date.

Sadly, the gaming sector in those regions has lagged well behind with declines of 4%, 5% and 6%, respectively. It has also underperformed the aggregates for all consumer sectors.

There appears to be a consistent view among the economic forecasters we follow of ‘economic crisis averted’. However, the outlook for global growth is below trend, albeit the estimates continue to nudge up.

For example, the International Monetary Fund continues to upgrade its global growth estimates, but this is mostly due to better growth in North America and emerging markets than for the UK and the Eurozone.

The main takeaway for us from the UK’s Office for Budget Responsibility’s recent update was its expectation that real household disposable income would recover quicker than previously forecast.

There are signs of life in some of the macroeconomic indicators: overall UK consumer confidence remains low but is improving and, most importantly, the UK consumer is as positive about the outlook for the next 12 months as they have been for some time.

The consumer sectors entered the year with almost universal optimism about the outlook for profits for the individual companies, albeit there was a general feeling the recovery from a challenging 2023 would be weighted to the second half of the year.

There was a broad expectation lower inflation and interest rates would be more supportive of wider consumer spending. Unfortunately, trends in profit estimates have been negative overall, including for gaming.

So, what can the industry do to start performing? Bluntly, upgrades to profit estimates for the year would be more than helpful. There are several other consumer sectors that are enjoying better trends in estimates, and therefore gaining more investor interest.