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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Mobile In-App-Purchases +30%

United States GDP falls, mobile engagement rises, Microsoft Gaming revenue drops

U.S. GDP Drops 4.8% in Q1

The U.S. GDP dropped 4.8% in Q1, which was greater than the 3.5% expected drop. Even though this is not as bad as some quarters during the last recession, it is a significant hit to the economy at large. The PMI Index, often used as a pulse on the economic trends of manufacturing in the U.S., was down 15% in Q1.

Unemployment has surged to the highest levels since the Great Depression in the 1930s, with nearly 19% of the pre-crisis labor force applying for unemployment benefits.

The question of how video gaming is performing, and will continue to perform, is what we are focused on here at Konvoy amidst this general macro backdrop.

Mobile Gaming Engagement and # of Players Increase

In Q1, we have seen particularly strong metrics in mobile gaming. According to GameAnalytics, the amount of monthly active players has gone up 46% from 1.2B to 1.75B and mobile playtime soared over 62%.

A common narrative we have read and discussed is that more players and more engagement does not always equate to more spenders; however, in-app purchases have also risen ~30% over the same period. While discretionary spending may be pulling down the value of users overall, growth and increased session times are providing buoyancy and a stronger counterweight.

Microsoft Gaming Revenue Down 1% in Q1

Although their player-base grew, Microsoft announced a slowdown in revenue for the company’s gaming division in its latest earnings report. This highlights one of the negative effects that some companies in the gaming industry may face.

There are three main factors that we believe contributed to their earnings slump: (1) a community transition to free-to-play games; (2) existing and new players spending their newfound freetime on Xbox and driving up costs; and (3) consumers having less discretionary income.

While this is not what most would have expected (gaming revenue for Microsoft fell 1%), the long term prospects are still promising for Microsoft.

In the short term, due to supporting more players and increased playtime, they will see costs outpace revenue. In the intermediate to long term however, we may see an acceleration of the next few hundred million gamers joining the gaming ecosystem.

It’s a great situation for potential gamers to try something new and social in a time where face-to-face interaction is limited. When the lockdowns ease up or end entirely, we expect Microsoft to see a portion of these new gamers become consistent players benefiting them in the long term.