December 2018 was the worst performing December for the global stock market since the Great Depression and the worst performing month since the Global Financial Crisis in 2008. Fortunately, in January 2019 markets bounced back sharply with the MSCI All Countries World Index (ACWI) delivering a monthly return of 11.4%. Both Fintax Funds benefitted and have started to recover some of their short-term, temporary losses. Longer-term, both funds remain in the top quartile relative to their respective peer groups.
The Biggest Threat to Liverpool and Netflix
When the CEO of Netflix and the CEO of Liverpool were asked what the biggest threat to their companies were, both replied with one word: “Fortnite’. In fact, in the most recent Shareholders’ report, the CEO of Netflix stated: “We compete with (and lose to) Fortnite more than HBO (a rival video streaming service)”.
In the rapid changing content streaming industry, competing services all vie to get people to use their service. The best experience leads to part-time users becoming long-term subscribers which in turn leads to annuity-based revenue. The battle is, therefore, centred on getting a user to spend the most amount of time on the relevant service, which makes it inherently more valuable.
In the way of the video streamers’ mission stands their toughest competition: Online gaming.
Online gaming, video streaming as well as physical sports are increasingly competing for a user’s limited time, with online gaming starting to lead the pack, to the extent that it is becoming a problem. Japan, for example, currently has an estimated 930 000 online game addicts. China recently slowed down its approval of new games being released due addiction concerns. The World Health Organization (WHO) has revised its classification of diseases to include ‘gaming disorder’.
One of the rising stars in online gaming is Fortnite with over 200 million registered users. Not bad for a game that was only launched in August 2017.
|Average time players spend on game per week||6-10 hours|
|Estimated in-game purchases||$1billion+|
|Percentage of players that are students and have skipped class to play it||35.0%|
|Percentage of players that work and have skipped work to play it||20.5%|
|Average revenue per user (ARPU) per year||$96|
Whether Fortnite’s massive user base will continue to grow profitably remains to be seen. After all, it was not too long ago that the Angry Birds gaming franchise took mobile devices by storm, and today their user base seems miniscule to what it once was.
Whilst the Fintax Funds do not hold a position in Epic Games (the private owner of Fortnite) they do hold a position in a big, well-funded competitor; Facebook through their investments in Contrarius.