Video games are big business. But away from UK and US gaming stocks flaunting console and game sales there’s another side investors need to look at if they’re to find the best gaming companies to invest in. Competing in gaming events and watching people play video game competitions has become an industry in and of itself, known as esports. And esport stocks are making up a growing part of the whole gaming industry.
According to Newzoo, global revenue for esports is expected to hit $1.4bn by the end of 2022. This comes from an audience of 532m people, which has grown by 8.7% since last year.
So, remember when your parents said that playing video games was a complete waste of time? Well, parents aren’t always right.
The term ‘esports’ is short for 'electronic sports’.
It’s a combination of sports and digital video games. Playing football ‘IRL’? That’s so 2002. Why boot a ball at the park with your own feet when you can kick one on a screen as thousands watch on and cheer at your success?
Not only are people making money by playing video games professionally, but there’s a surprising number of people choosing to watch people play instead of picking up the controller or a joystick themselves.
Although esports have been popular in Asia for years, the internationalisation of gaming culture and streaming quality with the introduction of platforms like Twitch and YouTube helped bring the industry global reach.
With increasing international demand for esports, firms are needed to build the hardware, create the games, organise the competitions, and find the best gamers from across the world.
Esport stocks are companies related to this competitive and streamable gaming ecosystem.
Everyone will have individual preferences around the esports games they’re interested in, but PCMag believes the top titles to watch and play in 2022 include the likes of:
If you’re interested in investing in esports stocks, it’s worth getting yourself clued up on the top games, just as you’d research the top players in any other industry you want to invest in.
As it's a growing industry, some investors are hoping that these stocks will provide long term investing returns, but this won’t necessarily be the case.
Unfortunately, it’s impossible to point at any single esports stock and claim it’s the best. What you can do is take a look at what’s popular among other investors as a starting point. You can then draw your own conclusions on whether these investments are right for your portfolio after you’ve dug a little deeper.
To give you some examples of popular esports stocks, here are some of the most-bought shares that investors bought on Freetrade last year.
Source: Freetrade, 2021.
Riot Games is the private company that brought League of Legends to 150m LOLers around the world.
Since Riot Games isn’t publicly traded, it’s not possible for most retail investors to own Riot Games stock.
But, there are ways to get investment exposure to the game indirectly. One way is through ownership of Amazon shares.
AMZN owns major streaming platform Twitch, so you can access the revenue generated by the hundreds of thousands of esports enthusiasts using Twitch to watch League of Legends gamers.
Investing in AMZN also provides some diversification into other sectors like cloud computing. Equally, this means your investment isn’t just reliant on esports performance and could be dragged down or brought up by other areas.
This is another way to get some indirect exposure to League of Legends and Riot Games, along with plenty of other popular esports titles
Alphabet owns YouTube, which is a popular platform that gamers and esports supporters use to watch the latest League of Legends pro tournaments. YouTube also has an exclusive deal with Activision Blizzard to stream its esports leagues. Again, an investment in GOOGL also gives you some diverse involvement in other business segments outside of esports.
This can be a good thing. Though, it also highlights the importance of not jumping into the investment based on one of its products or services alone. Make sure you understand the full gamut of what their business relies on to earn revenue before you place all your bets on a single segment.
This company is backed and part-owned by David Beckham. But, just as you shouldn’t judge an investment by its share price alone, neither should you consider Guild Esports a top stock just because of a celebrity endorsement.
The involvement of a big-name footballer does draw a lot of eyes to a business. But eyeballs don’t pay the bills, let alone generate profitability. Just ask DB-backed Cellular Goods.
What does rake in the revenue for Guild Esports are the esport competition teams it owns. The teams play across major titles including Apex Legends, FIFA, Fortnite, Rocket League and Valorant. The firm’s goal is to build a strong pipeline of UK gaming talent and gradually branch out its brand and digital presence into other areas.
GILD is one of the only major esports firms based in Britain and was the first esport stock trading publicly in the UK.
Another firm based in London, Gfinity is slightly different from other stocks because it doesn’t create any games or own any competition teams.
Its key focus areas are digital media, IP (intellectual property), and JVs (joint ventures) with corporate partners. The bulk of its energy right now goes toward working behind the scenes to help gaming companies set up their own esports events and tournaments.
Basically, it’s a consultant for firms wanting to get involved in esports. While it’s fairly unique in that industry for now, it wouldn’t be difficult for a larger international company to muscle in on its business model, which could put future growth at risk.
Sea is another stock with a focus stretching further afield than esports. It's based in Singapore and primarily functions as a holding company for payment platform AirPay, e-commerce business Shopee, and game publisher Garena.
It’s best known for creating the game Free Fire, one of the most popular titles in South East Asia and Latin America. What makes it a potentially interesting esports stock is the potential it holds to incorporate its other business streams into gaming franchises without the need of outside support.
So, Sea has some diversified revenue streams. But at the same time, that puts it at risk of trying to do too much, and never specialising. That’s not always a strategy destined for failure, but sometimes becoming a jack of all trades and an expert in none can be a detrimental choice.
Huya is a Chinese stock and a subsidiary of Tencent, the parent company of Riot Games (the League of Legends creator).
It's a video streaming service that covers a few genres but is mostly centred around live gaming and major esports competitions. Seeing as a large chunk of the esports market revenue is generated in China, 36% of 2021’s $1.1bn in revenue, there’s plenty of material for HUYA to stream.
But, investing in Chinese companies can come with unique China-specific obstacles. This includes policy changes like age restrictions on gamers and time limits for kids playing games, moves that could shoot down the growth of esports stocks that rely on Chinese gamers for revenue.
Although it's not the most popular in terms of its esports community, Roblox is a gaming stock with a passionate legion of followers. It has a big following of watchers on platforms like YouTube and Twitch but, because it’s more of a creative platform than competitive gaming stock, it has less attention from esports competitors.
This game developer is unique because it allows users to create their own games. It's also one of the pioneers of in-game purchases, using its own virtual currency ‘Robux’. Lately, its crosshairs are aiming at the metaverse, making it an esports and metaverse stock too. Though given the budding nature of that industry, it’s a long-term investment for the firm which might not pay off.
Even though it has proved to be a popular gaming stock following its IPO in 2021, recent Q2 revenue of $639.9m was slightly lower than expected. Also, its user base growth has slowed down, with figures dropping from 54.1m in Q1 to 52.2m in Q2. Those could be red flags to keep an eye on in its upcoming quarterly release.
Activision Blizzard is a game developer with some major titles under its belt such as Call of Duty, World of Warcraft, Overwatch, and StarCraft.
It has had a fair bit of success creating active and engaged gaming communities, something that’s crucial in the esports industry. It’s also one of the biggest companies in the US stock market and recently received a takeover bid from Microsoft (MSFT) worth around $68.7bn.
However, this news was overshadowed by negative press surrounding the firm’s CEO, and the acquisition deal is still undergoing regulatory review. So it’s not a sure thing just yet. And, it's hard to predict how the company will perform if it does come under MSFT ownership.
Buying a stock on the hopes of it receiving a takeover bid is never a good idea. You can’t be certain if and when that will happen. And long-term investing is your best way of generating sustainable investment returns, not pulling out your crystal ball to guess what company will be the next to get bought out.
Anyone familiar with major sports game franchises will already be well aware of EA.
It has a number of licensed relationships with professional sports leagues, giving it some competitive advantages in the esports space. The licences with professional sports leagues are exclusive, meaning no other games developers can create games containing those team names or players. So, it has a foothold on that market.
There’s still plenty of scope for EA to build a greater relationship between real-world sports and esports. But, the licences are extremely expensive and EA has also made a number of recent acquisitions, piling up its costs.
Take Two owns major franchises such as Grand Theft Auto, Red Dead, NBA 2K, and WWE 2K. It also recently acquired mobile and social networking game developer Zynga, creator of Farmville and Words With Friends.
While it’s got some long term gaming faves under its belt, its only major esports franchise right now is the NBA 2K League, which is a popular venture streaming on ESPN along with other major platforms.
But, it will need to find ways to diversify and expand its esports involvement. Otherwise, it may get left behind as an esports stock if it doesn’t find a way to successfully turn the rest of its loyal gamers into a competitive community of button bashers.
There are popular gaming hardware stocks such as Nvidia (NVDA) and Corsair Gaming (CRSR) that aren’t solely tied to esports, but do supply gaming chips and peripherals that are essential to the industry.
It’s also worth mentioning Microsoft (MSFT), which owns Xbox and some other major game studios. If the acquisition of Activision Blizzard goes through, they could be a force to be reckoned with in the esports sector for both hardware and software.
There are also popular investment trusts like Scottish Mortgage (SMT) whose current holdings include Tencent (TCEHY), Amazon (AMZN), and Epic Games. But, an investment trust will also expose you to lots of companies and industries outside of esports.
It’s also important to make sure you take a look at the added costs and fees involved with these types of investments (for example, SMT’s ongoing charge is 0.32%) and keep in mind that they won’t offer a perfect level of diversification.
Another potential option for investing in esports is using an ETF (exchange-traded fund). This type of investment is often classed as one of the best investments for beginners because it gives you access to a range of stocks with a single investment. It takes a lot of the guesswork out of investing.
The most popular esports ETF on the Freetrade app last year was the VanEck Video Gaming and eSports UCITS ETF USD Acc. (ESGB). It tracks the MVIS Global Video Gaming and eSports Index, an industry benchmark that includes many of the stocks mentioned here along with gaming royalty like Nintendo and US semiconductor company AMD.
Just remember that, while thematic ETFs like this one do diversify between companies, they’re all ultimately connected to the gaming industry. If there’s a sudden shock or boon that affects the whole sector, it’s likely the entire ETF will feel it.
As this section of the games industry is expanding and gaining traction, more companies could be looking to take advantage and raise money through an initial public offering (IPO).
That might mean more and more esports-related firms going public over the next few years, depending on market conditions.
It’s hard to predict when esports companies will make the decision to go public. But, if you want to stay up to date with all the latest upcoming IPOs, it’s worth keeping an eye on the Freetrade IPO calendar and IPO news page.
Just keep in mind that when an esports stock becomes a publicly traded company, it will likely be a volatile time for the shares as the market tries to figure out a fair valuation. There’s no reason to rush into an investing decision when you’re in it for the long haul.
Once you’ve considered the investment risks and weighed them up against the potential benefits of investing in esports stocks, here’s a straightforward step-by-step guide explaining how to invest:
For some more guidance, you can read our in depth guide on how to invest in stocks. Whichever way you decide to invest in esports stocks, make sure that you only use these investments to play a part of your diversified portfolio.
As an investor, it’s extremely difficult to pick the companies that will succeed in the long run, and this is especially true for newer sectors like esports. Many esports stocks are reliant on the performance of a handful of games, or sometimes only one. The sentiment and popularity can easily shift if something bigger, better, and more exciting comes along.
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Important Information
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.
When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
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