How to Invest in eSports?
During the pandemic, the popularity of video games skyrocketed. You can invest in gaming and eSports with stocks and funds. Let’s figure out which ones.
World companies have been investing in the gaming segment for a long time. The fastest-growing part of the gaming world is esports. Companies buy and build huge stadiums for tournaments, and the prize money at these tournaments sometimes exceeds the earnings of athletes who play traditional sports. These events are sponsored by major brands, and they also sponsor esports teams.
Video games during the quarantine
During the pandemic, investors began to actively invest in technology stocks. The demand for online services has grown as work, entertainment and other important aspects of life have become virtual for several months.
Games are a big niche in online entertainment. During the period of forced quarantine, their popularity especially increased. It can be assumed that after the release of the lockdown around the world, the surge in popularity of video games will decrease. However, the ex-chief editor of Igromania, Pavel Karasev, believes that this will not happen: “The demand for games will not decrease after the quarantine is lifted. In 2020, consoles will have new models: in November, the new Sony PlayStation and Xbox will hit the market. So the hype will be at least until the end of the year. Moreover, the consoles have many new fans in quarantine.”
The NPD Group report said that in the second quarter of 2020, spending on video games in the United States increased by 30% compared to the same period last year and reached $11.6 billion. Sales of game content increased by 28% to $10.2 billion. According to the PwC report, in the period from 2013 to 2018, the volume of the Russian video game market doubled and reached $2 billion in revenue. Analysts predict that by 2023 this figure will increase to $2.5 billion (assuming growth rates remain at 5.6% per year).
ESports against COVID-19: the gaming industry has been hit by the pandemic
Due to the quarantine in the world, several large-scale sporting events requiring the presence of athletes and spectators had to be canceled.
- The football championship Euro 2020 has been postponed until the summer of 2021.
- The Olympic Games, which were to be held in Tokyo this year, have been shifted one year ahead.
- And on Thursday, May 28, it became known that the outstanding Boston Marathon had been canceled for the first time in 124 years, and a new date was scheduled for the fall.
When real sports stagnated, interest in the gaming industry grew. In particular, as soon as the quarantine began, the Steam platform broke the record for the number of users: 2 million people from all over the world were present on one site, 6 million of them were playing simultaneously. Players prefer classics: CS, Dota 2, Rainbow Six Siege, GTA 5, etc.
Gaming Industry by the Numbers in 2019, video game sales worldwide totaled $148.8 billion, up 7.2% from the previous year, according to research firm Newzoo. 26% ($38.4 billion) of this amount is accounted for in North America. In the region, video game sales grew 8.3% year over year, Newzoo said. According to the research agency, the video game industry is undergoing profound changes in terms of technology and business model.
Esports as an investment
Since 2016, esports has become an officially recognized sport. And over the past few years, tech and telecommunications companies have been investing a lot of money in this area. They are all traded on the exchange.
Private investors should pay attention to e-sports: “Investing in e-sports is now a very interesting option. The online entertainment sector is growing more than other sectors, and even more of the pharmaceutical industry, which is busy with the production of the coronavirus vaccine, and whose growth is likely to be limited by time.”
The easiest way to invest in gaming and esports is to buy shares in the companies that are in the business. These include manufacturers of games, consoles, software. Also, chip and processor manufacturers such as NVIDIA play an important role in the gaming industry.
Notable companies in the games industry
Tencent Holdings is a large Chinese investment holding, which includes dozens of companies: video game developers, PR companies, social networks, and others. The holding is the owner of the largest esports league ‒ the League of Legends Championship Series. Chinese social network WeChat is also owned by Tencent. Tencent’s second-quarter 2020 net income was 33.1 billion yuan ($4.77 billion), up 37% from the second quarter of 2019. The company’s capitalization is about $670 billion. It is traded on the Hong Kong Stock Exchange.
CD Projekt is a Polish holding company, publisher, localizer, and developer of computer games. It was the one who created the series of video games The Witcher based on the novel “The Witcher” by A. Sapkowski. The first part of the game was released in 2007, the last update was in 2016. The Witcher gained worldwide popularity and turned a small Polish company into a huge corporation. Based on the game, Netflix made a series of the same name. CD Projekt’s shares have surged 21,000% over the past ten years ‒ none of the publicly traded European STOXX 600 companies has seen such gains. In February 2020, CD Projekt had a market capitalization of $ 8 billion. The company’s net profit for the first quarter of 2020 increased by 409% to € 20.9 million compared to the first quarter of 2019. Traded on the Warsaw Stock Exchange.
Activision Blizzard is a major US developer of games for PCs, consoles, and mobile phones. The company is known for its games World of Warcraft, StarCraft, Diablo, Hearthstone, and Heroes of the Storm. Igor Ivchenko believes that the company has good business performance and has upside potential for its shares: “Considering that Activision Blizzard has signed a partnership with Google (the company will use Google Cloud for its hosting infrastructure, and YouTube will become a platform for streaming Activision Blizzard esports tournaments ), shares are likely to increase. “The company’s net profit increased by 76% in the second quarter of 2020, to $580 million. The company’s capitalization is $36 billion. It is traded on NASDAQ.
Electronic Arts is another industry giant alongside Activision Blizzard. Both companies are included in the S&P 500. Electronic Arts publishes games FIFA, NBA Live, NHL, Battlefield, Star Wars, Mass Effect, Need for Speed, The Sims, and others. The company receives a significant part of its revenue from the sale of in-game content. The company’s net profit in the first quarter of the fiscal year 2021 amounted to $365 million. Electronic Arts capitalization is about $40 billion. It is traded on NASDAQ.
Separately, I would note Epic Games and their aggressive market capture. They made a ton of money playing Fortnite, crushed Steam, launched their store, stifled competition in the graphics engine market with their Unreal Engine 5, and gave out millions in grants to studios. And now they even got into a dispute with Apple about the fees in the AppStore. Epic Games has a huge margin of safety, an incredible nuclear audience, and investment from the Chinese at Tencent. Epic Games is not listed on an exchange.
Hardware manufacturers are important players in the gaming industry. Meeting the growing needs of gamers around the world is challenging due to increased computational complexity and increased graphics requirements. In this regard, “ahead of the rest” Nvidia, engaged in the production of video cards ‒ graphics cards for computers.
Demand creates supply, and gamers provide a growing stream of customers for the company. Besides, Nvidia’s graphics cards meet the needs of projects specializing in complex computing and artificial intelligence. Cryptocurrency mining, by the way, is also performed on Nvidia devices. The company’s shares have lost a lot in value after the bitcoin bubble deflated, but are now in a growing trend again.
It is one of the largest companies in the world with a capitalization of about a trillion dollars, and its products are familiar to everyone who has ever turned on a computer. In terms of components for gaming PCs, this company is noticeably inferior to Nvidia. However, many gamers actively use another product of Bill Gates’ company ‒ the Xbox One video console. Before the release of the next version of the Xbox, it makes sense to pay attention to Microsoft stock.
Investing in games with funds
If you are afraid that the company will go bankrupt, or you cannot choose one, then there is an option to invest in several at once. And from different countries. To do this, you need to buy an exchange-traded investment fund. For example ETFMG Video Game Tech (GAMR). The fund has been operating since 2016 and it manages the capital of $115 million. The portfolio includes 88 companies that are associated with the gaming industry.
Among them, there are game publishers and computer hardware manufacturers. For example, Razer, Nintendo, Nvidia, IGG, Webzen Games. The fund is diversified by country. Shares from the United States occupy 26% of the portfolio, from Japan ‒ 17%, from South Korea ‒ 15%, from Hong Kong ‒ 9%. GAMR management fee is 0.75%. One share of this ETF is worth about $66. The fund’s shares are traded on the NASDAQ exchange.
6 reasons to start investing in esports
1. Fast-growing market
The esports market is growing rapidly. This certainly attracts advertisers.
The specificity of advertising in computer games is such that 95% of the screen is occupied by the game itself. This makes it difficult to integrate ads. While in traditional sports, advertisements can be placed on the boards of the fields or the equipment of players, but this trick will not work in computer games. This contributes to the invention of new, more interesting, and creative ways to promote through eSports channels. For example, McDonald’s placed advertising banners in Copenhagen with phrases from the Counter-Strike game. “Eco Round” was written above the hamburger, “Full buy” above the combo. Esports fans immediately caught the references to their favorite game and were delighted with such a promotion.
Cybersport attracts viewers by the fact that the latter themselves actively play games that they watch. Broadcast and advertising account for the bulk of the market. The number of active viewers is also growing steadily. Leading events in LoL, Dota 2, and CSGO have already attracted about half a million viewers, and this does not include the Chinese audience.
In the example of The International Dota 2 tournament of recent years, one can see the growth. According to the portal Esport Charts, the peak number of viewers in 2018 was 1,205,979. Already in 2019, 1,968,497 watched the tournament at its peak. The growth was about 50% in just a year. A similar dynamic is observed in all aspects of esports: prize money, sponsorship contracts, audience flow, etc.
2. Prospective audience
Cybersport is the leader among all sports activities in terms of engagement rates. Nielsen’s research has shown that 90% of fans play themselves. This is since the core of the audience is young people. Adult fans of classic sports (football, hockey, biathlon) are more likely to be considered “couch fans”. In esports, the opposite is true: the audience is actively involved in the game’s design. Cyber Sportsmen have their own opinion about teams and clubs, they follow the latest trends and pay attention to sponsors. It is important for them which brands athletes choose since their opinion is quite authoritative and is perceived as a personal recommendation.
The youth of the audience is often perceived as the reason why many sponsors are wary of investing in the esports segment, but this is not entirely true. The audience grows and develops along with the industry. An interesting example that demonstrates this is one of Gillette’s stocks. It was aimed at teenage cyber fans who are about to choose a shaving brand for the first time. At the “Can You Beat an Esports Champion?” Gillette brand unveiled unique 3D printed razor handles. In the 45-minute line were not only young but also quite adult visitors to the event. By conducting such promotions, companies manage to establish a powerful emotional connection with a potential consumer who is likely to give preference to this brand in the future.
3. Possibility to enter related markets
In countries where the eSports segment is most developed, it penetrates a wide variety of industries and institutions. For example, in Denmark, esports has already been added to some school programs. In the classroom, children are not only taught to play games but also explained that they must occupy clearly defined places in the student’s life and not interfere with their studies.
This is not the only example of the integration of the esports segment into other areas. DreamHack, one of the world’s largest esports festivals, has contracted with Fortum, an energy company that generates most of its electricity from windmills, water, and solar panels without emitting carbon emissions. This collaboration seems to be very organic since the availability of electricity is the main condition for the existence of computer games.
Such trends should be spread more actively. The esports industry is open to new sponsors, and with a well-thought-out strategy, even small companies can gain access to an active, solvent, and engaged audience.
4. Low entry threshold
You can start investing in esports with relatively small amounts. The industry is growing rapidly, but it is still small in comparison with other areas of entertainment. By and large, investment is about advertising. It is very easy to find a platform for advertising your product in esports. These can be videos/banners on broadcasts, product placement, sponsorship of teams, and organizers. The amount of investment depends on the level of the site. But in any case, the amounts will be less than in classic sports, show business, or television. At the same time, the coverage of the relevant audience will be at a higher level.
5. Audience buying power
The main argument against investing in esports was the low paying capacity of the audience. 5-10 years ago it was like that. However, the modern viewer of eSports tournaments has grown significantly. Now the average age of the eSports audience is 25 years. These are young people who, for the most part, already earn money themselves. The audience knows what it needs and is ready to buy the advertised products. Some of the younger viewers will also mature over time and will probably continue to be interested in esports. In general, the audience is already solvent, but in the future, it will only improve in this regard.
6. Reach the target audience
Advertising in eSports is one of the most promising. The advertiser knows exactly who is watching the esports tournaments. These are people who are interested in games, who use a computer, who are in the stream of modern technologies. Based on this, the advertiser receives excellently targeted advertising, due to which the investment will quickly pay off. In other words, the viewer receives advertising for those goods and services that are potentially interesting to him.