The video game industry is slowly stealing the thunder of traditional media and entertainment. Netflix’s management has indicated one free-to-play video game “Fortnite,” is a “bigger threat to its business than HBO.”
The global gaming market is as big as $135 billion and is growing at a high-single-digit pace including console, PC and mobile revenues. The segment is gradually transforming to online from offline. eSports, mobile gaming, subscription models and streaming services are some of the emerging trends in this arena, per analysts.
New Super Cycle Awaits
This promising video gaming industry is now on the verge of entering a “new super cycle.” And some analysts are betting big on this new cycle, which has the potential to dole out profits of 8X to 18X, as indicated by Olivier Garret, CEO of RiskHedge.
The mega announcements made in the recent past were Sony’s (NYSE:SNE) expected launch of PlayStation 5 in holiday season 2020. Microsoft (NASDAQ:MSFT) will also present its “next-gen” console — Project Scarlett — in 2020 holidays (read: Best Thematic ETFs for 2020).
Last time that the duo startled the video game market with such big announcements was in 2013. In 2013, PlayStation 4 and Microsoft’s Xbox One were launched in November. The launches acted as a cornerstone for the entire industry. That year, shares of Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) rose 69% and 58%, respectively.
Olivier Garretexplains that when gamers buy video game consoles of Sony or Microsoft, they also buy some video games along side. As a result, the entire industry benefits. An article published on Forbes noted that the last super cycle helped video game title sellers like EA throw off 1261% gains from 2012 to 2018, Take-Two Interactive (NASDAQ:TTWO) shares to skyrocket 1665% and ATVI add 690%.
The article also highlighted investment bank Cowen’s view which says, “Activision, Take-Two, and Electronic Arts beat the stock market by an average of 26% in the year leading up to the last three major console launches, which occurred in 2000, 2005, and 2013.”
ETFs & Stocks to Play
Against this backdrop, one must take a look at the below-mentioned video gaming ETFs and stocks.
ETF Picks
ETFMG Video Game Tech ETF GAMR
GAMR tracks the EEFund Video Game Tech Index, which follows companies actively involved in the electronic gaming industry, including the entertainment, education and simulation segments. It charges 75 bps in fees (read: Defiance's AUGR ETF Debuts as Video Gaming ETF (VIDG)).
VanEck Vectors Video Gaming and eSports ETF (NYSE:ESP) O)
The fund ESPO follows the MVIS Global Video Gaming and eSports Index, which intends to track the overall performance of companies involved in video game development, eSports, and related hardware and software. The fund charges 55 bps in fees (read: Capture the eSports Craze with this ETF).
Global X Video Games & Esports ETF (JK:HERO)
The underlying Solactive Video Games & Esports Index seeks to provide exposure to companies positioned to benefit from increased consumption related to video games & esports, including companies whose principal business is in video game development/publishing, video game & esports content distribution & streaming, operating/owning esports leagues/teams & producing video game/esports hardware. The fund charges 50 bps in fees (read: NVIDIA (NASDAQ:NVDA) Earnings Report Puts These ETFs in Focus).
Stock Picks
Activision Blizzard Inc (NASDAQ:ATVI)
The Zacks Rank #1 (Strong Buy) companyis a leading developer and publisher of console and online games.
NetEase Inc. (NASDAQ:NTES)
The Zacks Rank #1 company is a leading Internet and online game services provider in China (read: After a Solid 2019, 5 China ETFs to Keep Rallying in 2020).
Sony Corporation (NYSE:SNE)
Japan‘s Sony Corporation designs, manufactures and sales several consumer and industrial electronic equipment. It has a Zacks Rank #1. The launch of PlayStation 5 puts this stock in a sweet spot.
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NetEase, Inc. (NTES): Free Stock Analysis Report
Sony Corporation (SNE): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Espey Mfg. & Electronics Corp. (ESP): Free Stock Analysis Report
ETFMG Video Game Tech ETF (GAMR): ETF Research Reports
GLBL-X V&G&ES (HERO): ETF Research Reports
Activision Blizzard, Inc (ATVI): Free Stock Analysis Report
Electronic Arts Inc. (EA): Free Stock Analysis Report
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