Amazon Expands Its Gaming Efforts

| About: Amazon.com, Inc. (AMZN)

Summary

Amazon released a free game engine code-named Lumberyard that is integrated with AWS and Twitch.

Positive implication to AWS's growth and diversification into video game services.

Remain bullish on AMZN. Current valuation from the recent pullback appears to be attractive.

Amazon (NASDAQ:AMZN) released a new, free game engine code-named "Lumberyard" in a move that integrates its gaming assets, media distribution channels and cloud support. More importantly, this marks another move by AMZN to scale its Internet/software service offering and diversify away from a pure e-commerce model. The company has executed exceptionally well in terms of building its Prime ecosystem that is estimated to have over 50m users. Its cloud service is already powering several large platforms including Netflix (NASDAQ:NFLX) and Airbnb (Private:AIRB). Scaling up gaming is a logical move to leverage its assets in cloud, gaming and media that could potentially drive the company's long-term profitability. I remain bullish on AMZN, and see the recent pullback since Q4 to present long-term investors with an attractive entry point.

Lumberyard offers deep integration with its AWS server infrastructure to allow online play and game streaming over its Twitch.tv channel. The engine includes a full source code, is completely free to download, and is powerful enough to develop triple-A, current-gen console games for both Xbox One and PlayStation 4. Console and PC will be a near-term focus while mobile support and virtual reality are on the road map. Monetization will come through the use of AWS. In conjunction with the Lumberyard launch, AMZN has also announced and released GameLift, a new managed service that deploys and scales server-based online games using AWS. GameLift will be available only to developers who use Lumberyard and will cost $1.50 per 1,000 DAUs in addition to the nominal rate charged by AWS.

Looking at the Lumberyard's core engine and the technology behind it, I believe that AMZN is getting serious about moving into game development services. Worth noting that Lumberyard's core engine is based on Crytek's CryENGINE, which Amazon licensed in its entirety and subsequently built upon it by adding AWS SDK to the engine that allows for native C++ access to its services, and bringing in new low-latency networking code based on Double Helix, a studio that AMZN acquired in 2014 and is known for its development of Killer Instinct for Xbox. With an entirely new asset pipeline and process as well as new Double Helix networking code, Lumberyard has evolved to be a competitive game engine.

A cornerstone of Lumberyard's development involves Twitch integration, which allows "Twitch Plays"-style chat commands and viewing options that allow viewers to leap directly into online games alongside the broadcasters as they stream. This essentially creates a more comprehensive experience that embraces the notion of a player, broadcaster, and viewer all joining together. More important, this will be highly appealing to developers who make games that thrive on broadcasting and e-sports, a trend that developers such as Activision (NASDAQ:ATVI), EA (NASDAQ:EA) and Take-Two (NASDAQ:TTWO) have all been embracing. A free triple-A game engine with deep AWS and Twitch integration could potentially be a catalyst for the e-sports industry. Ultimately, I see this as a positive for game developers and AMZN as it generates revenue from gaming services.

Conclusion; remain bullish on AMZN due to its Prime ecosystem and AWS's growth outlook.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.