Please ensure Javascript is enabled for purposes of website accessibility

Can Facebook Gaming Disrupt the Game Streaming Market?

By Leo Sun - Oct 22, 2019 at 7:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social network’s gaming platform is growing like a weed as Twitch loses streamers.

Last year, Facebook (META 1.70%) launched Facebook Gaming, a game streaming platform aimed at challenging Amazon's (AMZN 2.07%) Twitch. Streamlabs reports that between the first quarter of 2018 and the second quarter of 2019, Facebook Gaming's number of active streamers surged 236% to an all-time high of 153,000.

Twitch had 2.94 million active streamers in September, but that marked a drop from its 3.67 million streamers a year earlier and indicates that it's losing ground to rivals like Alphabet's (GOOG 2.36%) (GOOGL 2.39%) YouTube, Microsoft's (MSFT 1.70%) Mixer, and Facebook Gaming.

Facebook remains in fourth place behind those three leaders, but it has a few tricks up its sleeve. Let's examine three ways it plans to catch up.

A female gamer plays a PC game.

Image source: Getty Images.

1. Offering a more profitable platform

Facebook offers two ways for gamers to generate revenue. First, gamers can be selected for Facebook's "Level Up" program, which requires streamers to have over a hundred followers and stream content for at least four hours over two days within a 14-day period. Those streamers gain access to stars (tips from viewers worth $0.01 apiece) and the ability to launch subscriptions for their channels. Twitch, YouTube, and Mixer offer similar tipping and subscription platforms.

Second, Facebook selects top-tier creators to become partners. They sign a contract, agree to streaming quotas, and gain regular financial support from Facebook. They're also allowed to test out newer features like ads and custom sticker packs. Twitch offers a similar dual-tier platform for streamers, with affiliates at the lower level and partners at the higher level.

Several gamers recently told Business Insider that they were making more money on Facebook Gaming than other platforms, since it was easier to build a bigger audience with fewer competing streams and direct access to Facebook's sprawling social network. Those claims were anecdotal, but they indicate that Facebook Gaming could lure aspiring streamers away from rival platforms with bigger paychecks.

2. A broader gaming ecosystem

Earlier this year, Facebook merged its live streams, gaming groups, videos, and Instant Games (mini-games for Facebook and Messenger) onto a dedicated tab in its social network.

A woman in glasses plays a game on a PC.

Image source: Getty Images.

Facebook claims that over 100 million active users participate in over 340,000 gaming groups and that over 20 billion Instant Game sessions had been played by the end of 2018. That broad reach, along with gaming videos and live streams, widens Facebook Gaming's moat against Twitch, YouTube, and Mixer.

Those three platforms don't offer mini-games, and their members generally interact in live chat rooms instead of the news feeds in Facebook's groups. Facebook is also currently running a beta test for a dedicated Facebook Gaming app, which could bundle together all those features on a single platform.

3. Focusing on emerging markets

Facebook Gaming faces an uphill battle against Twitch in developed markets like the U.S., but it's especially popular in Brazil, Mexico, and the Philippines, which are also three of its mobile app's beta-test markets. That push complements the growth of Facebook's core business, which is relying more on the growth of emerging markets to offset its slowdown in the U.S. and Canada.

Last quarter, Facebook's monthly active users (MAUs) rose just 1% to 244 million in the U.S. and Canada, but grew 2% to 385 million in Europe, 12% to 1 billion in Asia, and 8% to 782 million across the rest of the world. Streamlabs notes that Facebook Gaming's streamers in Asia, Latin America, and Europe account for the lion's share of the platform's growth. NexxuzHD, one of YouTube's top Spanish-speaking streamers, also recently started streaming games on Facebook Gaming.

Therefore, Amazon, Microsoft, and Google should keep a close eye on Facebook Gaming's pursuit of gamers and streamers across these overseas markets.

The key takeaway

Facebook Gaming isn't a major source of revenue for the tech giant, which generated 98% of its sales from ads last quarter. Instead, it's likely incurring losses as it invests in more content creators to attract viewers.

However, Facebook clearly considers Facebook Gaming to be another essential part of its video ecosystem, which also includes Live, Watch, and IGTV. Expanding these platforms could help Facebook lock in more viewers, generate more ad revenue per user as its user growth plateaus, and raise its barriers against YouTube and Twitch's expanding video platforms.

Facebook Gaming remains an underdog, but its growing appeal among game streamers, its popularity in emerging markets, and the support of the company's core social network indicate that it could still disrupt the global game streaming market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon and Facebook. The Motley Fool has the following options: long January 2021 $85 calls on Microsoft. The Motley Fool recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Microsoft. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$180.50 (1.70%) $3.01
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$291.91 (1.70%) $4.89
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$121.68 (2.39%) $2.84
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$143.55 (2.07%) $2.91
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$122.65 (2.36%) $2.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.