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Should You Be Buying "Esports Stocks" Right Now?


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Perhaps no entertainment medium is as universally beloved as video games. From the days of arcade cabinets to the console revolution and the advent of virtual-reality gaming, people around the world have always loved video games.

Today, the global gaming industry is adjusting to its latest trend: esports. Video games tend to be competitive by nature, but esports bring the intensity of this competition to the next level. And just like a traditional physical contest like a soccer game or boxing match, esports require high-level training, sportsmanship, and clutch performance.

Competitive gaming at a professional level is a relatively new concept, but money is already flowing into the industry at a rapid pace. Pro gamers are now facing off in international tournaments, racking up corporate sponsorships, and battling for multi-million dollar prizes.

But is this just another quirky trend, or should investors consider esports a legitimate growth industry? There are certainly plenty of publicly-traded video game companies, but will any of them feel the effects of esports? Is there any money to be made here? Let's take a closer look.

Market Size

The global esports economy is expected to grow to more than $905 million in 2018, according to market research firm Newzoo . That figure would represent year-over-year growth of roughly 38%.

About 77% of this cash will be generated directly through sponsorships and advertising and indirectly through media rights and content licenses. Game publisher fees are expected to account for 13% of this year's economy, while merchandise and event ticketing will bring in about 10%.

"As a business, esports is now entering a new and critical phase toward maturity. Big investments have been made, new league structures have been launched, sponsorship budgets have moved from experimental to continuous, and international media rights trade is starting to heat up," said Newzoo CEO Peter Warman.

But as one would expect with any young business, rising revenue does not necessarily mean profits are being realized yet.

"Profitability and return on investment is, for many organizations at the heart of the Esports Economy, a challenge," Warman added.

Nevertheless, we can see that the scope of the esports industry-and its rapid rate of growth-should put it every investor's radar. With this much money pouring in, people need their own strategies if they want to be among the first wave that profits from esports.

Investment Ideas

One low-exposure method for investing in esports is buying shares in Wall Street darling Nvidia NVDA . This trendy company makes high-end graphics processing units (GPUs) that are marketed towards PC gamers. These GPUs are a top choice for professional gamers, who understandably need their machines to perform at the highest level.

Nvidia has attracted attention because of its investments in machine learning, artificial intelligence, and self-driving cars, but gaming is still the company's core business. The rise of esports promises to generate even more interests in its GPUs, and the stock is already sporting a Zacks Rank #1 (Strong Buy).

The more direct approach to investing in esports is through the video game publishers. Millions of people are tuning in to watch professional gamers play some of the world's most-popular games, which increases brand awareness and drives licensing fees for these companies. And these brands are certainly looking for ways to cash in further from this business.

For example, Electronic Arts EA recently launched its "EA Competitive Gaming Division." This new group focuses on operating professional leagues for games like FIFA , Madden NFL , and Battlefield . Meanwhile, Take-Two Interactive TTWO partnered up the National Basketball Association to launch the "NBA 2K eLeague," which will feature a team operated by each of the NBA's 30 franchises (also read: Esports Goes Mainstream with NBA, FIFA Deals ).

Another video game publisher that stands to benefit from esports is Activision Blizzard ATVI . Activision recently purchased a major esports company, Major League Gaming, for $46 million.  ATVI also just started a professional league for its immensely-popular Overwatch game. The new "Overwatch League" is the first pro league of its kind, with 12 teams representing cities from around the globe.

But one of the most promising "esports stocks" right now is Chinese internet giant Tencent Holdings TCEHY . Tencent owns Riot Games, the developer of one of the world's most-popular games, League of Legends . According to Newzoo, League of Legends was the second-most watched game on Amazon's AMZN Twitch streaming platform during the month of January.

Tencent is also uniquely positioned to succeed in Asian markets, which continues to be the hottest region for esports. Tencent is currently sporting a Zacks Rank #2 (Buy).

Want more market analysis from this author? Make sure to follow @ Ryan_McQueeney on Twitter!

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Tencent Holding Ltd. (TCEHY): Free Stock Analysis Report

Activision Blizzard, Inc (ATVI): Free Stock Analysis Report

Take-Two Interactive Software, Inc. (TTWO): Free Stock Analysis Report

Electronic Arts Inc. (EA): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks
Referenced Symbols: AMZN , TCEHY , ATVI , TTWO , EA



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