How to Invest in the Video Game and eSports Industries via Gaming Stocks
Before the COVID-19 epidemic started, the scale and expansion of the video game and eSports industries had already surprised many. As customers hunt for new methods to amuse themselves while restricted to their homes, this expansion has now intensified even more and got an additional dimension with more frequent betting on eSports tournaments at specialized betting sites among which are those at bookmaker-expert.com/country/brazil/.
Global gaming spending increased from an expected $84 billion in 2014 to close to $150 billion in 2019. The amount spent on gaming was projected to be $159 billion in 2020 but exceeded the anticipated figure to $174 billion. The quantity of new gamers who have joined the market is very important. In this article, we analyze the eSports and the gaming industries, the different business models, and the gaming stocks you might want to look at.
The Sector of Video Games
The first video game format appeared in the 1940s, although it wasn’t until the 1970s that such a business model for the sector was sustainable. Arcade games and later video game systems saw a swift rise in popularity. Video games and gaming consoles were created in the 1980s alongside improvements in personal computers. Nintendo and Namco were notable companies, although games were also made for all the prominent PCs of the day.
With operating systems emergence, such as Microsoft Windows, quicker response rates, 3D graphics cards, and the CD-ROM, development surged during the 1990s. Shortly after mobile devices had first been released, mobile games too were released. Sony introduced the PlayStation gaming console in 1995. Because of its popularity, Microsoft saw it as a competition to the PC business and decided to enter the hardware market with the Xbox. Since 2000, the number of console games, PC games, and mobile games has increased steadily.
New methods of gaming monetization and game marketing have been made possible by eSports, wherein teams of professional gamers contest against one another. By 2023, it’s currently anticipated that 646 million people will watch eSports. Other current developments include cloud gaming and live streaming of sporting events. With 2.7 billion smartphone users worldwide, mobile gaming too has experienced a significant development spurt. The quantity of registered gaming stocks has increased along with the size of the sector. Investors can now choose from a wide range of stocks to gain exposure to the sector.
Gaming Stocks Investment
There are a few considerations to make while searching for video game shares to buy. The gaming industry is broad and has many facets, including hardware, live streaming, eSports, and many aspects of game creation and distribution. Investors should take note that there are many distinct categories of gaming stocks and that stock performance will vary over time. Profits from new games can be generated right now. However, distribution, as well as a stream of new games and franchises, are the key to long-term sustainable growth.
Superb gaming stocks are frequently cyclical. Sales are cyclical and generally increase during the holidays. At the start of a season, sports video games are frequently upgraded to incorporate new players, which can help increase sales. When new consoles are released, new purchases also happen. Gaming stocks with the capacity to become multi-bagger shares should be considered by long-term investors. These businesses have the ideal culture and approach to developing a portfolio of successful game brands. Then, you can use revenue cycles to make investments at fair prices.
A more active strategy is frequently needed for smaller gaming stocks. Whenever a new game gains popularity, these stocks often do well, but they can also tank. For smaller gaming stocks, a momentum-based strategy is frequently more appropriate. Cloud gaming is probably going to become more and more popular as 5G technology is used. This will benefit software companies that use a SaaS-style model. This would imply that the only pure-play gaming stocks that perform well over the long run are those.
Largest Businesses Involved in eSports and Video Games
The biggest technological corporations in the world are the owners of many of the top resources in the gaming sector. The seven biggest tech firms in the world each have a major presence in the gaming industry. You’ll be exposed to other industries if you invest within those businesses, but gaming will continue to be a key growth engine.
- Amazon (Nasdaq: AMZN)
Amazon has two different gaming exposures. First off, the market is a significant global distributor of video games, gaming consoles, and related goods. Second, the biggest live streaming service in the world, Twitch, is owned by Amazon. Gamers utilize Twitch to broadcast eSports events as well as live stream their gaming sessions. Now that Luna, a cloud gaming service, is ready, Amazon is also creating its own games. There is now a small audience using the platform.
- Tencent (US OTC: TSEHY, Frankfurt: NNND)
Few people had heard of Tencent up until a few years ago. The gaming empire that the $700 billion firm has amassed over the years is one of the factors contributing to its success. Tencent has achieved this by buying interests in both established gaming companies and smaller game makers; 40% of Epic Games, the company that publishes Fortnite, plus smaller investments in Ubisoft, Activision Blizzard, and Supercell are included in these holdings. Massively multiplayer games like Call of Duty and League of Legends are also hosted by Tencent; 30% of Tencent’s overall revenue, or $17 billion, came from gaming in 2019.
- Sony Corporation (NYSE: SNE)
In 1995, Sony introduced the now-iconic PS1 (PlayStation 1), and it quickly rose to the top of the console gaming market. It unveiled the fifth-generation PS5 in November 2020, once more squaring up against the most recent Xbox. Sony’s platform is once again outselling the Xbox by a significant percentage, according to early sales data. In terms of overall gaming revenue, Sony is ranked second in the world, after Tencent. However, just about 25% of total sales are still generated by the gaming industry. Sony isn’t yet a pure-play gaming stock, despite the fact that gaming is a significant growth driver.
- Alphabet (Nasdaq: GOOG/GOOGL)
Once the Google Play Store opened, Alphabet started to make money from gaming. A second cloud streaming platform called Stadia was introduced by Google in 2019 to directly compete with Apple’s Arcade. In the market for live streaming, YouTube also serves as a significant player. Compared to the other firms on our list, gaming makes up a lesser portion of Alphabet’s revenue, but it’s expected to increase significantly in the future.
- Apple Inc (Nasdaq: AAPL)
Previously, Apple’s gaming income came from both in-game purchases and the sale of titles on the App Store. Apple Arcade, a cloud gaming subscription service, was introduced in 2019. This strategy is consistent with the business’s plan to expand toward subscription-based services to supplement its hardware business. Users of Arcade pay $4.99 per month, and by the conclusion of 2022, they have had access to more than 200 games. The initial result was a decrease in game-related revenue from the App Store. The business anticipates that a portfolio of expensive games would eventually draw more users to the ecosystem.
- Microsoft Corporation (Nasdaq: MSFT)
In 2001, Microsoft unveiled the first Xbox in response to the PlayStation game system’s commercial success. The fourth generation Xbox Series S and Xbox Series X were introduced in November 2020. Xbox sales have traditionally lagged behind PlayStation sales. Xbox sales do, however, make a significant contribution to Microsoft’s earnings and revenue growth. Microsoft’s cloud gaming service, Xbox Game Pass Cloud Gaming, was introduced in 2019.
- Sea Ltd (NYSE: SE)
Online gaming and retail firm Sea Limited is situated in Singapore. The business is the owner of Shopee, a sizable e-commerce firm, as well as the Garena Digital Entertainment platform. In Asia, Garena creates online games and manages multiplayer titles like FIFA Online, League of Legends, and Heroes of Newerth. More than 500 million people play Garena Free Fire on mobile devices. Over the past five years, Sea Ltd’s revenue has increased more than 10-fold thanks to the gaming industry.
- NetEase (Nasdaq: NTES, Hong Kong: 9999)
One of the tech behemoths of China, NetEase offers a variety of online services, such as communication, e-commerce, and content. NetEase has amassed a sizable online and video game empire over the years. Astracraft, Identity V, and Xuan Yuan Sword are a few of the most well-liked NetEase games in China, and Fantasy Westward Journey is a well-liked Apple game. Activision Blizzard and NetEase collaborate to manage localized versions of each other’s games in China. For the past five years, NetEase’s main businesses have contributed to average revenue growth of 38%.
- Facebook Inc (Nasdaq: FB)
It’s challenging to estimate Facebook’s gaming revenue because it’s so varied. The content that holds Facebook’s audience interested has long included games, especially games that are playable on mobile devices. Ad revenue increases as a result of this. More lately, game live streaming has also grown to be a significant growth engine for the business.
Stocks of Pure-Play Gaming
The most notable gaming companies are featured in the list below. The noteworthy exception is Valve, the private firm that owns the game developer Steam.
- Activision Blizzard (Nasdaq: ATVI)
Activation is among the US’s biggest and oldest gaming firms. Some of the most popular FPS (first-person shooter) games, including Call of Duty, were created by this business. Diablo, World of Warcraft, Overwatch, Hearthstone, Guitar Hero, and Candy Crush are further popular series. With these titles, the business now possesses what is likely the most significant portfolio of PC games. Activision is a major player in the eSports industry and runs Call of Duty and Overwatch leagues. Despite a significant slowdown in recent years, ATVI has nonetheless been able to increase profits.
- Nintendo (NTDOY: US OTC, also listed in Japan and London)
Nintendo is the world’s oldest producer of gaming equipment. Nintendo has created a sizable number of game consoles and handhelds since 1977. The corporation also owns Mario and Donkey Kong, two iconic early-game franchises. Nintendo hasn’t always had a pleasant ride, as the sales of various platforms have fallen short of expectations. The outcome has been inconsistent revenue and a highly unstable share price. However, since the launching of its newest platform, the Nintendo Switch, in 2017, income has increased consistently. Investors are hoping that the Switch can emulate the PlayStation and Xbox product lines’ success.
- Take-Two Interactive (Nasdaq: TTWO)
Due to its collection of immensely famous titles, Take-Two has had one of the highest-performing gaming shares in 2020. Two of its companies, Rockstar Games and 2K, are the owners of its games. Grand Theft Auto, Red Dead Redemption, NBA 2K, and Borderlands are just a few of the games in the portfolio. The business also runs a well-known NBA 2K eSports league. Take-Two is a well-known business that has succeeded in luring and keeping some of the greatest people in the sector. Additionally, the corporation has been successful in keeping its audience interested in new releases and eager to upgrade existing titles.
- Electronic Arts (Nasdaq: EA)
Another US-based company that creates original games is EA. The Sims, Battlefield, Need for Speed, and Apex Legends are some of the company’s own games. Additionally, Electronic Arts license titles from other publishers, such as Star Wars, Madden NFL, and FIFA. EA has underperformed over the past few years with few new games to rival the best games offered by competitors. However, as new games for the new platforms are released over the holiday season, its fortunes are anticipated to improve.
- Huya (NYSE: HUYA)
The biggest gaming live-streaming site in China is called Huya. The website also serves as Nimo TV on a global scale. It is anticipated that the business, which is partially controlled by Tencent, will merge with DoyYu, another streaming platform. Currently, more than 150 million people subscribe to both sites.
- Glu Mobile (Nasdaq: GLUU)
A leading producer of free-to-play casual games that are frequently disregarded is Glu Mobile. Both downloaded apps and social media platforms provide these games. Instead of charging for game access, they make money via ads and in-app sales. Although there’s a wider audience for mobile games, long-term growth depends on a steady supply of well-liked titles. Due to its small market worth of $1.7 billion, Glu might one day become the target of an acquisition.
- Zynga (Nasdaq: ZNGA)
When Zynga originally floated in 2011, it temporarily rose to the top of the market. The most popular Facebook game at the time, Farmville and Cityville, provided the initial impetus for it. Up until 2018, the business had trouble repeating the popularity of its early games. It currently has a selection of free-to-play games that are accessible through Apps and social media sites. In-game purchases and advertising bring in money. Although growth has been robust in 2020, it is unclear if this trend will hold.
- Ubisoft (US OTC: UBSFY, Paris: UBI)
The French video game developer Ubisoft is the brains behind popular titles like Assassin’s Creed and the Rainbow Six series. In recent months, the stock price has increased in expectation of new games getting updated for the Xbox and PlayStation systems. In fact, the business has fresh releases scheduled for four of its well-known franchises this Christmas season.
- CD Projekt (US OTC: OTGLF, Frankfurt: 7CD)
The popular Witcher role-playing game series is the creation of the Polish game studio CD Projekt. In recent months, the stock price has gone up in anticipation of Cyberpunk 2077’s upcoming release the following week. A futuristic open-world role-playing game has just been released. Sales of Cyberpunk 2077 will influence the trajectory of the stock price, which is speculative.
Hardware and Accessories for Gaming
Aside from the businesses that develop the games directly, a number of businesses provide the parts required for both audio and video devices, in addition to associated machinery. Investing in these businesses can make stock selection simpler because you won’t have to choose winning video games or gaming systems.
The most significant businesses in this market are as follows:
- Nvidia (Nasdaq: NVDA): The largest producer of graphics cards and other hardware essential to video games and cloud gaming.
- Advanced Micro Devices (Nasdaq: AMD): Gaming PC CPUs and GPUs are created by AMD, which also creates Xbox and PlayStation consoles.
- Logitech (Nasdaq: LOGI): For the gaming industry, it also produces a variety of peripheral devices, such as joysticks, cameras, and keyboards.
- Corsair Gaming (Nasdaq: CRSR): The company manufactures PC parts as well as peripherals like gaming-specific keyboards.
Options to Consider Too
Allied Esports Entertainment (AESE), Super League Gaming (SLGG), and Esports Entertainment Group (GMBL), are three US-listed pure-play eSports organizations. All of these businesses are micro-caps that aren’t yet profitable. They ought to be viewed as hypothetical plays as a result.
There are three exchange-traded funds (ETFs) to think about if you want to diversify your investments:
- Wedbush ETFMG Video Game Tech ETF (GAMR): 2016 is the year of its launch, which now includes 91 equities. At 0.75%, the expense ratio is quite significant.
- VanEck Vectors Video Gaming and eSports ETF (ESPO): The highly concentrated, which holds 26 gaming equities, was introduced in 2018. This fund has a 0.55% expense ratio, making it slightly more affordable to hold.
- Roundhill Bitkraft Esports & Digital Entertainment ETF (NERD): With a 0.25% cost ratio, it was introduced in 2019. Other categories of entertainment stocks are included in this fund’s wider investment universe.
Conclusion
The COVID-19 pandemic has caused a number of megatrends, such as remote work and distance learning, to accelerate. Another sector that has prospered from the pandemic is the gaming business. As the pandemic ends, growth may slow down, but the long-term outlook is still favorable. First off, the epidemic has increased the number of players in the gaming industry. Additionally, more individuals will have access to games even if they don’t own a PC or gaming console as the usage of smartphones and broadband rises.