The video game industry….what a huge market.
Who doesn’t love videogames? They’re fun and they make you believe you’re in another reality as no other form of entertainment can. And it’s a very lucrative industry too.
Way more than the film and music industry….combined!
Let’s just compare the highest-earning movie with the highest-earning videogame in history:
- Avengers Endgame: $2.798 billion
- GTA V: $ 6 billion
See the difference?
It’s more than double!
Now let’s compare the 3 industries estimated revenue worldwide:
There’s a clear difference between the three industries. We don’t get so much news on the videogame industry so we tend to overlook it but it’s humongous!
Did you know how big it was? I certainly didn’t until recently and I’ve always been a fan of videogames. I simply wasn’t aware until I started digging a little bit. And you don’t need to go far to get the scope of it. It’s there for anyone to see.
Since 2016, the segmentation per device has changed and the PC is not in the lead anymore. If we look at more recent years and projections, we see that mobile games (tablet and smartphone) are the ones taking the lead.
We’ll have Mobile in the first place, followed by Console and PC last. This can give you some guidance on which firms to invest in. We’ll just see the Mobile video game segment here, but feel free to do some research of your own.
The industry is expected to grow at a rate of 9% annually and some say it will reach 300 billion in revenue by 2025!
Today we have 2.5 billion gamers around the world. A typical gamer would be 35 years old, male with 13 years of playing experience. Now, gender gaps have been shrinking and with the rise of mobile games, female gamers have increased dramatically. Women prefer mobile games over other devices, so we’ll see if they take the lead in following years.
You’ve got some promising stocks in this segment (in no particular order):
- SciPlay Corp.: focused on video games for mobile and web platforms with titles like Jackpot Party Casino and Monopoly Slots. Their total revenue grew 11.9% for 2019 compared to 2018.
- Zynga Inc.: focused on video games for mobile and web-based games with titles like FarmVille, Words with Friends, and Zynga Poker. Their total revenue grew 45,68% from 2018 to 2019.
- Electronic Arts: the company develops on multiple platforms but when it concerns mobile games we’ve got titles like Star Wars: Galaxy of Heroes, The Sims Mobile, Fifa Mobile, and many more. Their total revenue declined by 3,88% from 2018 to 2019. But they are reporting already an increase of 12% for the first quarter of 2020.
- Nintendo Co. Ltd: another major company working on multiple platforms, with titles in mobile games such as Pokémon Go, Dr. Mario World, Super Mario Run, etc. Their total revenue increased by 13,72% from 2018 to 2019. This stock trades in the Japanese market so remember the additional money conversion and fees if you operate outside Japan.
Note: I’m not mentioning Activision Blizzard in this section because of their negative growth and stock overvaluation. Even though, it’s worth mentioning that they own King, the company responsible for making overly famous Candy Crush. Their total revenue declined by 13,48% from 2018 to 2019 and they’ve had a 2% decline in this first quarter of 2020. At the current stock price (as of may 16th 2020) it may be overvalued.
Exchange-traded fund (ETF)
Now if you feel more comfortable and less inclined to risk, you could focus your investment on an exchange-traded fund (ETFs). In this case, you would be investing in multiple videogame companies compared to those individual stocks already mentioned.
You’ve got three ETFs:
- EEfund Video Game Tech Index [GAMR]: it’s comprised of 36 companies across the world that operate as hardware manufacturers, software, and mobile apps writers. It was the first ETF to focus on the videogame industry back in 2016. In these 3 plus years, their trailing returns have been 10,36%.
- VanEck Vectors Video Gaming and eSports ETF [ESPO]: it’s comprised of 25 companies worldwide involved in video game development, eSports, and related hardware and software. It was launched in 2018 and their trailing returns have been 26,94%.
- Roundhill Bitkraft Esports & Digital Entertainment ETF [NERD]: it includes 26 companies across the world and they are more focused on Esports than on video games makers. It was founded in 2019 with trailing returns of 3,7%.
Considering this last ETF, it’s interesting to see how Esports has been growing exponentially. These electronics sports have attracted millions of viewers, with a consumer estimated annual growth of 14,4% until 2021. Even non-gaming companies are betting heavily in this market. Comcast for instance, is building a $50 million esports stadium in Philadelphia. Who would’ve thought of this kind of infrastructure for video games a couple of years ago?
There has been an increase in coverage of Esports events with online platforms like Twitch and Youtube leading the way. And people are spending more time watching Esports online. As of 2019, people have watched 6.6 billion hours of video games worldwide. It has been increasing at a rate of 1 billion hours a year so we’ll expect brands to follow customers, which brings even more revenue to the business.
The following are considered the top esports stocks:
- Activision Blizzard: they launched the Overwatch league in 2018, generating profits even in their first year. They have deals with Disney Channel, ESPN, and ABC networks for broadcast, so you’ll expect a lot of viewers there.
- Tencent Holdings: a massive media Chinese conglomerate has high stakes in different online streaming platforms. They’re responsible for the League of Legends tournament with its 2018 final being watched by over 100 million people. How much did TV series Friends have on the last episode? Double it and you get LOL viewers.
- Take-Two Interactive: owns Rockstar Games, responsible for the best-selling entertainment product in history (GTA V). They’re not as big as the other esports players but their development of the NBA 2k League is promising.
- Electronic Arts: they have some of the biggest franchises in gaming, with games such as FIFA and Madden. These have been broadcasted by major networks (CW, ESPN, and Fox) so you get a lot of coverage over there. They have other promising franchises that could become huge in the next years: Apex Legends and Battlefield.
- Huya: called the “Twitch of China”, the Chinese videogame content streaming company is having a rapid sales growth in recent years. They broadcasted 400 esports tournaments in 2018 amassing a 1.6 billion viewership worldwide.
It’s a young, exciting, and risky market but there’s much potential for investment for us young folks. This is the time to be among the first in a rising industry. You don’t get that kind of opportunity often.
The video game industry is a massive portion of the entertainment market. And it’s even getting bigger by the day. Just of March 2020, compared to March 2019, the revenues have plunged by 35% in the games market, largely driven by the coronavirus pandemic.
There’re many ways to invest and you have to see what suits you best. You’ll have to see if you want a stake in an individual company, or invest in an ETF. Also, ask yourself…would you rather invest in video game makers, hardware manufacturers, streaming platforms, or esports management (or even esports teams)?
With all of the recent social distancing phenomena and people relying more on inside entertainment, there’s a lot of growth potential in this industry. And if you’re a passionate gamer here’s another way to be connected to this fascinating world.
What’s there not to like?
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