Should Investors Be Betting On Esports And Gaming?

From leagues to legends, esports is more than just heroics and thumb dexterity; so what is so enticing about investing in esport entertainment?

The short answer to ‘should I invest in esports?’ would be ‘yes, you should’. But, investing in esports can be complex and overwhelming at first glance. With many companies, doing different things, including software, hardware, as well as game development and publishing, there are many intersecting cogs within this growing machine that will attract almost 500 million viewers in 2020 alone.

Though this figure pales in comparison to the 3.5 billion viewers who tuned into the 2018 Fifa World Cup Final, esports popularity is growing every year. So here are 3 reasons why you should invest in the online sports entertainment industry.

1. Mainstream investors

Despite holding a niche market status, esports has attracted some very big names. In an effort to bring in younger audiences, the likes of Tinder (NASDAQ: MTCH) and Geico (NYSE: BRK) contributed to sponsorship in 2019. Meanwhile, Amazon (NASDAQ: AMZN) bought Twitch — a popular, live video-game streaming service — back in 2014, and is now one of the top-rated websites in the world, in terms of user interaction and global engagement.

An Activision-Blizzard (NASDAQ: ATVI) and Alphabet-owned (NASDAQ: GOOG) YouTube partnership will see this leading gaming company exclusively stream esports with the world’s largest video site. This will give ad revenue and viewership a boost upwards as the industry keeps growing.

2. Diversified Sectors

Esports has a multitude of different areas an investor can choose from. From hardware and software, to game development and publishing. Each sector has its strengths and weaknesses which researchers like myself can get sucked into. So, here are some of my favourites.

First, NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) are hardware companies that produce high powered GPU chips for gaming devices. If you are interested in AI as well as esports, these would be a good choice of stock as they are currently in the process of diversifying into this expanding market.

Secondly, big gaming companies such as Take-Two Interactive (NYSE: TTWO) and Activision are a good idea as they develop and publish PC, mobile and console games. These companies tend to attract stronger loyalties from gamers themselves and one study by the University of Buffalo found that increasing customer retention by just 5% can increase profits by as much as 95%. Activision-Blizzard is one of the industry’s leading publishers as it makes games for PCs, mobile, and consoles. Additionally, it owns the high profile leagues of Overwatch and Call of Duty, which contributes 7% of its net revenue.

Thirdly, there is the option to invest into the industry as a whole. Video game ETFs are quite stable and have recently been outperforming the market. The VanEck ETF (NASDAQ: ESPO) for example, was up by 2% year to date compared to the S&P 500’s (NYSEARCA: VOO) 12% decline in the same period. Investment into one such as the VanEck ETF or the NERD ETF (NYSE: NERD) by Roundhill Investments would give your money to different areas of esports including hardware, developers, and esport oriented companies.

3. Future Growth

The global esports market is expected to be worth $1.8 billion by 2022. The majority of revenue is generated through advertisements, while prize pools, ticket sales, merchandise, and betting also bring in cash.

Looking at the growth of gaming in general, it has been an upwards journey with a few dips here and there. As can be seen by the growth of ‘Fifa’ and ‘Battlefield’ creator Electronic Arts (NASDAQ: EA), it is a strong and stable sector. Since 2015, EA has seen its stock price almost double.

Individual gaming stocks are having a good 2020. Activision-Blizzard has seen an increase in its stock price of 24% YTD, while its market cap has also increased by 26% from $45 billion to $57 billion since December.

One thing to remember however, is that these leagues will be impacted by a loss in sponsorship and ticket sales whilst the repercussions of COVID-19 unfold. Nonetheless, online viewership will increase as people look to fill in the gap from the loss of traditional sports during the global lockdown. It remains to be seen what will happen once our real-life athletes are back on the TV. 

Overall, esports is a growing sector both in variety and in size. It would make sense for any investment portfolio to include a company involved with esports as it would add diversity and character, as well as strong indicators for growth in the future.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.