When I was a kid, a video-game tournament consisted of a few friends duking it out in Tecmo Bowl.
Competitive gaming is now a $1.5 billion industry and top professional players can earn up to $2 million a year, according to a recent Wall Street Journal report.
That may sound absurd, but those are the numbers. This is big business, whether you understand it or not. And with the average male gamer’s age of 32 and the average female gamer’s 36, if you don’t have a personal connection to video games, you might actually be in the minority.
Even 59-year-old congressmen are gamers these days. And Texas will soon finish a $10 million stadium exclusively designed for e-sports video-game competitions. On Wednesday, ESPN, Disney (DIS), XD and Blizzard Entertainment announced a multiyear agreement for TV coverage of professional e-sports league Overwatch League.
Investors should be intimately familiar with trends like this one, where a change in consumer behavior unlocks massive opportunities. Sure, technology is part of the gaming revolution. But the rise of e-sports also reflects a change in taste and culture more akin to Lululemon Athletica (LULU) whose stock rose 10-fold from 2009 to 2012 during the “athleisure” mega trend.
E-sports may never go toe to toe with traditional events such as the World Cup, which is a global phenomenon. But LULU didn’t have to fully replace blue jeans or khakis in order to carve out a highly lucrative niche, and it’s pretty clear that yoga pants are as much a wardrobe staple these days as blue jeans.
Simply put, consumer entertainment trends are powerful opportunities. So in many ways, this cultural connection makes the e-sports and video-gaming mega trend more durable than a mere gadget fad — and a much more interesting long-term investment opportunity.
That means if you’re looking for a growth opportunity, you’ll want to get in on the ground floor of this worldwide e-sports phenomenon.
Here are seven stocks to help you do exactly that:
One stock that best exemplifies the e-sports opportunity is streaming video player Huya (HUYA). This Chinese company provides a live-streaming platform for gamers to share their experiences, exemplifying both the trend of video games as a spectator sport and the global nature of this phenomenon. Huya is not wildly profitable yet, but its June earnings report showed a doubling of revenue. Huya completed its initial public offering in May, and after closing its first day of trading at around $16, is up roughly 100%.
Are you really surprised that tech giant Amazon.com (AMZN) is a big player in e-sports as well as everything else? Think back to the 2014 acquisition of Twitch for about $1 billion, a move that many stodgy Wall Street types thought was a bit weird at the time. Since then, the deal has been heralded by some tech entrepreneurs — Niel Robertson (among others) — as one of the cheapest and most prescient deals in recent history. Already you can see Twitch content appearing in the broader Amazon ecosystem, including Amazon Prime, and with a massive distribution network, the company has all the necessary elements to be the go-to provider of e-sports content in the years ahead.
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Another rapidly growing streaming play in China is gaming platform Bilibili (BILI). While this stock also IPO’d in the spring, its gains have been far less dramatic than those of Huya; shares are up “only” about 20% since its April debut. However, BILI is a different investment than HUYA because it is a more diversified company, with entertainment tie-ins to anime and comics as well as games. This might make it more appealing to some investors. The platform has over 77 million visitors, and is growing at a roughly 35% clip, according to its latest earnings report. Furthermore, over 80% of those users are under 18 years old, showing this Asian property is a great play on where e-sports are headed instead of just the here and now.
While admittedly not as connected yet as some of the other platforms, Google parent Alphabet (GOOGL) is doing its best to stay abreast of the e-sports trend. That includes a $120 million investment in China streaming play Chushou that is dedicated to streaming mobile game play. Google, like Amazon, has many ways to make a play on the e-sports trend even if it is not currently a big part of its business.
While access to game play is great for spectators, it doesn’t matter much without great titles as the actual source of all this entertainment. Right now, mega-hit Fortnite from Epic Games is the global phenomenon that is at the top of the heap with a massive player base of more than 125 million and a war chest of $100 million dedicated solely to fostering e-sports competition around the game. Epic is a smaller shop at first glance, but it’s backed by Chinese tech giant Tencent (TCEHY) which plowed $330 million into the software company five years ago in an incredibly well-timed move to snap up a 40% stake. Tencent has stakes in other major games and publishers, and caused one gaming blogger to muse recently that “in 20 years, it will own us all.”
While Fortnite may have much of the mindshare right now, don’t count out publisher Activision Blizzard (ATVI). This studio has created plenty of hits over the past few years, including digital card game Hearthstone, which is a huge fad on mobile devices, and 2016’s Overwatch, which is still a big hit on consoles after generating $1 billion in its first year or so of sales. It also has powerful brands including Warcraft and Diablo that are ripe for future development. And, of course, these titles all have multi-player elements that allow for future e-sports tie-ins.
If you’re interested in spreading your investment around the space instead of dedicating yourself to a single publisher or venue, consider the ETFMG Video Game Tech ETF (GAMR). This fund has a reasonable $120 million in assets, so it’s liquid and legitimate. It includes a healthy group of 72 video game-related plays with no single holding representing more than about 2.5% of the portfolio. Like movies or fashion, it’s always hard to figure out who will have the next big hit in a dynamic consumer industry. GAMR lets you play the broader trend without worrying about picking individual winners and losers. The fund is up 23% over the past 12 months, compared to a 17% return for the S&P 500 Index (.SPX).
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