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Microsoft (MSFT) Eyes Bigger Share as Video Gaming Thrives

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Microsoft (MSFT - Free Report) is undertaking efforts to expand its share in the booming video gaming industry. Video gaming industry is benefiting from increasing engagement triggered by the COVID-19 crisis.

Launch of next generation of  consoles from Microsoft and Sony is also driving higher consumer spending. Also, continued momentum in Nintendo Switch Sales acted as a tailwind.

Worldwide, the gaming market witnessed a stellar growth of 23.1% and reached an estimated $177.8 billion in 2020, according to data from Newzoo.

Growth in the video gaming space has continued in 2021. Per The NPD Group report as cited by VentureBeat, spending on video game hardware, content and accessories for May came in at $4.5 billion in U.S., up 3% year over year.


Flourishing Industry Spells Revenue Opportunity for Microsoft

The video gaming industry is likely to witness continued momentum owing to rapid adoption of cloud gaming. Cloud gaming is gaining popularity as it allows access to video games on various devices anywhere, anytime and removes the need for expensive gaming consoles/hardware.

Apart from cloud gaming, rising penetration of smartphones and use of emerging technologies like augmented/virtual reality for next-generation video games along with accelerated 5G deployment are key catalysts driving the market. Popularity of e-sports is also aiding market expansion.

The video gaming industry is set to witness a CAGR of 9.64% between 2021 and 2026 and reach $314.4 billion, according to data from Mordor Intelligence report. Cloud gaming is forecast to witness a CAGR of 48.2% between 2021 and 2027, per a Grand View Research report

These projections augur well for Microsoft, which is one of the leading players in the video game domain. The company doubled down on growing its video game business as the gaming industry witnesses a spurt.

A Look at Microsoft’s Push into Video Game Space

To capitalize on opportunities in the cloud gaming space, Microsoft recently expanded the availability of Xbox Cloud Gaming to Apple’s (AAPL - Free Report) iPhones and tablets as well as Windows 10 PCs through browsers (Microsoft Edge, Chrome or Safari) for Xbox Game Pass Ultimate subscribers. At present, the service is available in 22 countries.

Microsoft is also working on designing and developing various streaming devices for its cloud gaming service that will enable players to access games on an array of devices like TV or monitor, thereby eliminating the need for expensive consoles.

The company is expected to roll out cloud gaming through Xbox Game Pass Ultimate in Australia, Brazil, Mexico and Japan later in 2021.

Further, the tech giant has been working on overhauling its datacenters with latest Xbox hardware. This will deliver improved frame rates and load times, thereby transforming the entire video gaming experience.

Microsoft’s Game Pass Subscription Service has also emerged as key factor driving its video game business. Subscription services ensure a stable and recurring revenue stream. For a lowly monthly fee of $9.99, Game Pass allows subscribers to gain access to 100 video game titles on consoles.

The company’s Game Pass service rolled out in 2017 has been a huge success with more than 18 million subscribers. Additionally, its premium version of Game Pass service, Xbox Game Pass Ultimate offers impressive perks including a bundled Electronic Arts (EA - Free Report) EA Play service at no extra cost.

Combining cloud gaming with Xbox Game Pass Ultimate service, at no extra fees, is likely to be a gamechanger for Microsoft and strengthen its competitive position in the cloud gaming vertical.

Acquisition of ZeniMax a Brilliant Move

Microsoft’s acquisition Bethesda Softworks’ parent company ZeniMax Media for $7.5 billion is also expected to bolster Microsoft’s position in the video game space. The buyout has increased the number of in-house development studios for Microsoft 23 from 15 earlier. Some of the notable video games titles that belong to Bethesda Softworks include DOOM, Quake, Wolfenstein, The Elder Scrolls, and Fallout.

At the Xbox & Bethesda Games Showcase, Microsoft showcased 30 new titles including Forza Horizon 5 and Battlefield 2042. Of these 30 titles, 27 will be available with Xbox Game Pass service.

Many of the upcoming gaming titles from various Xbox Games Studios and Bethesda Softworks will be available for Game Pass subscribers on the day of release itself, including the much-awaited and highly-delayed Halo Infinite from 343 Industries.

We believe that these developments to enhance player engagement and deliver immersive experience will bolster revenues from gaming segment in the days ahead.

Currently, Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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