eSports stocks to watch
The rapid growth of the eSports market is driven by the increasing popularity of video games and investment interest that follows. We take a look at the expected performance of eSports stocks and any difficulties it could face.
What is eSports?
eSports, or electronic sports, is a group sport played online, where the players compete against each other using video games. The teams have a varied number of players, depending on which tournament they are competing in. The gaming competitions are well-organised events that either happen online or in an arena.
How much is the eSports market worth?
At the end of 2018, the eSports market was worth around $906 million. This figure is predicted to rise to more than $2.1 billion by 20231 – this is no surprise given that it has an audience that exceeds 380 million2. In the same year, most of the eSports industry’s revenue was generated by companies in North America and China, who together generated roughly 56% of the total3, with Europe coming in at third place. The revenue comes from various areas, including sponsorships, advertising, publisher fees, media, ticket sales and merchandise.
Fact: The highest earning eSports player, as of 2018, had overall earnings of $4.1 million.4
eSports stocks to watch
Stocks in this competitive industry are bound to become more and more attractive to investors, leading to tougher competition between the top brands. The stocks listed here are not necessarily ranked, or the biggest by market capitalisation, but they have attracted considerable attention due to the movements of their share prices.
Tencent Holdings (TCEHY)
Tencent Holdings (TCEHY), which owns League of Legends, Fortnite and Clash of Clans, is the largest gaming and social media company in the world, as of May 2018. The China-based company was founded in 1998, and listed on the Hong Kong stock exchange in 2004. When it first listed, Tencent shares were sold for less than a dollar, and showed a very slow incline at first, but by 2013 its market cap had reached $100 billion.
In January 2018, shares of Tencent Holdings experienced a sharp spike, with the price per share reaching $61. Although the price dipped slightly afterwards, at the end of 2018 the price was still hovering around the $40 level.
Fact: League of Legends has been the most watched game in eSports since 2015.5
Gfinity (GFIN) is a UK-based eSports company, which operates from London’s only eSports arena. GFIN is listed on the London Stock Exchange’s Alternative Investment Market (AIM). It has more than 800,000 registered teams that take part in international gaming tournaments, and offers multiple leagues including Counter-Strike and Streetfighter.
When Gfinity listed in 2014, its opening price was $34 – which gave it a market cap of approximately $16.6 million. But its share price has been notably volatile ever since – hitting a high of $44 in September 2017 – but declined significantly in the year that followed, dipping below $10 at times.
Activision Blizzard (ATVI)
Activision Blizzard (ATVI) is one of the oldest gaming companies in the world and in January 2019, it was still the largest by market cap. Originally called Activision, the company was founded in 1979, but it merged with Vivendi Games to form Activision Blizzard in 2008. It owns the popular games Candy Crush, Call of Duty and Overwatch, which have helped bring in over $1 billion in revenue to date.
In 1993, ATVI shares traded for less than $1 and for over a decade the Nasdaq-listed stock saw very little increase in value. Shares sold for $10 or less until 2013, when a boom in the eSports industry proved lucrative for ATVI and investors started to see a steady incline in the share price. Then, after a deal was made with Disney in July 2018 to broadcast eSports on some of its channels, the price peaked at $80 in September 2018.
Following a report that active users have declined, the share price did start falling again. Add to this the poor sales from a new game release, plus aggressive competition, and it could go either way for this eSports giant.
Electronic Arts (EA)
Electronic Arts (EA), popularly known as EA, is also one of the more mature companies in the industry. Founded in 1982, it owns dozens of famous games including FIFA, The Sims, Battlefield and Need for Speed, to name a few. Even though the Nasdaq-listed shares have seen significant volatility over the past five years, EA is up nearly 25% on a year-to-date basis.6
Shares of EA showed a slow incline from 1993 to 2005, with some mild volatility between 2003 and 2008, before dropping below $16 following the US stock market crash. In October 2012, EA shares bounced off the $13 mark and by January 2019, the shares had reached $90.
What you need to know about eSports
Much like real sports, eSports can be traded. Let’s look at the difference between eSports and real sports, as well as the difference in trading them.
eSports vs real sports
The difference between eSports and ‘real’ sports depends on which metrics are being compared. Some argue that eSports are real sports, because both have teams and coaches, and a sizeable audience. It also takes a great deal of skill and talent to learn how to play – and win – games. Plus, there is incredible money-making potential in both categories.
eSports vs real sports trading
Trading eSports can be done by speculating on the shares of the companies that own the eSports leagues. The teams and leagues can’t be publicly traded – yet, that is. As eSports teams gather more market attention, it is likely that more trading opportunities will be available in the future.
The value of traditional sports teams has also increased over the past decade, and you can buy and trade shares of popular sports teams such as Manchester United. It works just like any other market – with various factors that can affect the share price. What appeals to some traders is the fact that one good or one bad game doesn’t really shake the share price. There are more intricacies attached to trading sports teams – like player news and other logistics – which all makes for an interesting trading environment.
By the end of 2018, eSports viewership was estimated at 380 million worldwide, split between 165 million dedicated and 215 occasional viewers. The total number of viewers is predicted to reach 590 million by 2020. The livelihood of the eSports market depends on this viewership. If the popularity of a game or a league dwindles, the viewership will drop, and stock prices may take a dip. This could lead to a lower price-to-earnings ratio and, ultimately, a lower market cap.
Fact: eSports viewers spent near 18 million hours watching playoffs in the first quarter of 2018.
Where next for eSports stocks?
As eSports have seen increased interest over the past few years, it is thought that the gaming companies could see increased growth off the back of their growing popularity. A year-on-year growth of 38%7 and massive corporate investment could mean that eSports is more than just a trend.
However, growing revenue doesn’t always mean profits are being realised. The eSports industry is still growing, with budgets increasing and sponsorships heating up – which may put off potential investors or cause them to take longer-term positions.
While it’s impossible to predict whether eSports stock will continue to take off or not, it’s hard to ignore the progression of the industry over the past 10 years.
1 Esports.com, 2018
2 Statista, 2019
3 World Economic Forum, 2018
4 eSports Earnings, 2018
6 CNN, 2019
7 Forbes, 2018
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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