Investing in eSports - Is It a Good Idea?

Whether you’re into video games or not, there’s a good chance you’ve heard about the emerging industry that is eSports. If you haven’t, then you should know that it’s one of the fastest-growing industries in the world, estimated to be valued at over $1 billion in 2019, with projected annual growth of 22%. Those are pretty good numbers and it looks like the trend is only getting stronger YoY.

If you like what you’ve been reading and want to know where to start, you’ll find that there are a few ways to go about it - intellectual property (IP) makers, platform providers, and hardware makers.

IP Makers - These are the people who make the games. Without them, there would be no eSports:

1. Tencent Holdings (OTC:TCEHY) - This Chinese multinational holdings company owns the world’s largest gaming division, with stakes in many other gaming companies. In particular Epic Game - makers of the famous “Fortnite” and Riot Games - makers of League of Legends, one of the most competitive eSports around.
   
   
2. Activision Blizzard (NASDAQ:ATVI) - The largest gaming company in the U.S., with eSports IPs such as DOTA2, Overwatch, and Starcraft (the latter is practically a national sport in S.Korea). In the past 5 years, Activision stock went up from $17.13 to $81.39 by September ‘18.
   
   
3. Electronic Arts (NASDAQ:EA) - Electronic Arts is the second-largest U.S. gaming company, and holds the IP for eSports games such as FIFA, Madden NFL, and NBA Live. The company is working on establishing leagues for its sports simulators, and its stock has seen significant growth in the past 5 years, going from $22.83 in January 2014, to hitting a peak of $148.93 in July 2018.
   
   
4. Take-Two Interactive (NASDAQ:TTWO) - Developers of the infamous Grand Theft Auto (GTA) franchise, its last two games (GTA V and GTA Online) earned the company around $6.6 billion. Its claim to eSports fame is the NBA 2K eLeague.

Hardware Makers - To play eSports, one needs to use a computer capable of running the game of their choice. These next companies produce computer parts and accessories designed to give eSports athletes the best experience:

1. Intel (NASDAQ:INTC)- The world’s second-largest microchip maker and the leading brand when it comes to producing Central Processing Units (CPUs) - basically the “brain” that allows computers to run the software, which includes everything from the operating system to the games themselves. The company also holds the largest share of GPU (graphics processing unit) distribution, its GPUs are not generally used for gaming as they are generally less powerful than the competition, Intel’s stock has been steadily going up since 2009, going from $12.74 to over $50 at the time of writing this post.
   
   
2. Advanced Micro Devices (NASDAQ:AMD) - AMD is a major microchip maker and produces both CPUs and GPUs. The company competes with Intel in the CPU market and Nvidia in the GPU market. AMD’s products often cost less than its counterparts, while delivering similar (and on occasion - superior) performance. AMD’s stock has been volatile, as a result of its competition with its two main rivals.
   
   
3. NVIDIA (NASDAQ:NVDA)- Since 2014, Nvidia holds the largest share of discrete gaming GPUs, and is generally preferred by professional gamers, It’s important to note that since 2016, Nvidia’s GPUs were the processing unit of choice for cryptocurrency mining. In the past 5 years, its stock has gone up from around $15 to a peak in October 2018, where the stock price stood at over $286. However, its stock got slammed as the decline in crypto mining reduced demand for their GPUs, and the U.S.-China trade war hurt its earnings outlook. However, it has been showing signs of growth again since late-November ‘18.
   
   
4. Logitech (NASDAQ:LOGI)- Logitech is a prominent manufacturer of computer peripherals, such as keyboards, mice, headsets, smart home products and more. Logitech is well-regarded in the industry for the quality of its products. In the last 5 years, company stock has been steadily rising, more than tripling its value in September 2018, and despite suffering from market volatility in September/October, the stock still is double its value 5 years ago, and back on the rise.

Platform Providers - Aside from providing the hardware and games themselves, users need platforms to both run the games, as well as broadcast them to the world. This is where the next 2 companies come into play:

1. Amazon.com (NASDAQ:AMZN) - Everyone knows Amazon’s retailer side, as well as their huge cloud computing services, but Amazon also has a firm foot in the eSports world thanks to its 2014 acquisition of Twitch.tv - the gaming world’s largest live-streaming service. Any and all major eSports leagues do live broadcasts via Twitch, as well as both pro and regular gamers who broadcast themselves playing various games. Following Twitch.tv’s popularity, other major internet companies have been trying to replicate its success, most notably YouTube Gaming, and Facebook Gaming. In the past 5 years, the Amazon stock exploded from around $400, reaching $2050 in early September 2018 as well as reaching an evaluation of $1 trillion.
   
   
2. Microsoft (NASDAQ:MSFT)- The Redmond software giant produces the operating system on which the great majority of eSports video games are played. The company stock has grown from $37 just 5 years ago, to over $112 at the time of writing this. And where other tech companies took a serious blow during Sept/Oct 2018, Microsoft barely felt it with a 7% decline, which it has since almost completely surpassed, and is currently the highest-valued company in the world, overtaking Apple, Alphabet, and Amazon.

ETF - Yes, there’s also a video games ETF out there, if you prefer to invest that way.

1. PureFunds Video Game Tech (NYSE:GAMR) - If you favor the relative-stability of ETFs, you may want to invest in GAMR, which tracks an equity index of global firms that support, create or use video games. It’s important to note that this ETF has a higher-than-average expense ratio (0.82%).

The best answer we can give you is “Yes, but...”

While gaming and computing companies have been around for decades now, eSports itself is pretty young, only gaining global traction around 2010. Most of the major players in the field are doing pretty well at the moment, but the industry, by and large, is still volatile. With that in mind, we can point out the rapid annual growth of the market, as well as the money being funneled into it by major corporations, as well as private investors who create and finance eSports teams. The net worth of the top-10 eSports companies alone is over $1.5 billion, and prize pools for major competitions are in the millions (The International 2018 event - a DOTA 2 competition - has a prize pool of over $25 million).

Essentially, it’s still early enough to get in on the action, but the market can be unstable, so it’s up to the individual investor to decide whether or not it’s game time…

Please note that this is merely an informative piece and not a recommendation to purchase any type of financial instrument. Do your due diligence before you make any financial decisions.