Gaming sales are falling as gamers disconnect and come back to reality — coupled with a pending recession impacting spending.

What’s the big deal? Gaming companies just can’t catch a break. During COVID, they couldn’t meet high demand due to supply chain issues. Those issues are finally easing, but now gaming demand is falling.

• The mobile gaming market fell 9.6% in the first half of 2022.
• U.S. consumer spending on games is expected to fall 8.7% this year.

The second quarter was challenging for all parts of the industry:

1/ Console makers: Sony and Microsoft saw their business decline and forecasted lower sales, with Sony reporting playtime falling 15% last quarter.

2/ Game developers: Electronic Arts and Activision struggled with weak game releases, and last week, Roblox reported a 30% sales growth — down from 80% two quarters ago.

3/ Chipmakers: AMD and Nvidia reported lower sales from their gaming chip divisions — with Nvidia’s gaming revenue falling 44% from the previous quarter.

4/ Development tools: Unity — the game engine behind 70% of mobile games — missed its sales forecast last week and lowered its upcoming forecast.

Like other COVID-benefiting industries, gaming companies are hitting the reset button as growth, and stock prices fall to reflect the new reality. The VanEck Video Gaming and eSports ETF (NASDAQ:ESPO) — a basket of gaming stocks — is down 22% in 2022, while the S&P 500 is down 10%.

What’s next? Take-Two Interactive’s CEO said he doesn’t think “the entertainment business is recession proof” but says the “new normal is better than pre-pandemic.” What is the new normal? In the short term, that largely depends on consumer spending.