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1 Company Video Game Investors Can't Overlook

By Jon Quast, Clay Bruning, and Sanmeet Deo – Oct 5, 2021 at 9:45AM

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This company owns assets in multiple industries, making it easy for investors to forget how strong its video game business is.

According to multiple sources, the video game industry is worth around $200 billion, making it too big for investors to ignore. But with dozens of public companies and multiple ways to invest in the space, it can be hard to know where to start. If you're struggling to know where to dedicate your valuable time in researching a company, consider spending some time getting to know Tencent Holdings (TCEHY 2.34%).

In this video clip from Motley Fool Backstage Pass, recorded on Sept. 13, analysts Sanmeet Deo and Clay Bruning explain why Tencent needs to be on investors' radars. From having important assets of its own to forming strategic partnerships, it's a company that has a lot going for it.

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Sanmeet Deo: I'll kick it to Clay first to give us his pick in this industry.

Clay Bruning: I haven't done a lot of research on individual companies in mobile gaming. But for me, after catching up with some of my market research, to me, I felt like I had to bring out a mobile gaming company or one that's at least involved in this space. A couple of came to mind, but the one I just kept coming back to, and maybe that's because they've been in a very bumpy road because of some regulatory risks in China, is Tencent.

This is a company that they're not just a video game or a mobile gaming company, but they have a ridiculous portfolio of assets. Not only in mobile and video games as a whole, but just in ridiculous areas like autonomous driving, delivery, you name it they're there.

But specifically, some of the portfolio companies that got me excited about the mobile gaming opportunity are Supercell -- this is actually one that's pretty close to my heart. In high school and during the pandemic, I was a heavy Clash of Clans guy. That's one of their mobile games, and I think they have related games like Clash Royale and some names like that, but that's one of their portfolio companies. They have an investment in Activision Blizzard. When you think about the Call of Duty portfolio and they've increasingly tried to make a presence on the mobile devices as well. We've talked at length about Epic and they have a substantial investment in Epic. Obviously Epic is the maker of Fortnite on mobile, PC, and on consoles. Then they also have a substantial investment, I think it's 20% or 30%. They own 20% to 30% of Sea Limited, which has seen just an astronomical growth. I think their game, they own the maker of Free Fire, which I've heard is like the most downloaded mobile gaming app within the last couple of months. When I think about mobile gaming, I don't know who's going to be the winner, but I think Tencent offers a pretty attractive opportunity to diversify within some of these big names, so that would be my pick in the mobile gaming space.

Deo: Awesome. I was curious when you're talking about Supercell and Clash of Clans, I looked at some of the other games. I noticed Brawl Stars. That's a game my son played [laughs] so much during the pandemic, too, Brawl Stars. He played anywhere, he grabbed my phone and just start playing. [laughs] I said, "What are you playing?"

That's pretty cool. I get all my gaming investment advice from my son.

Sanmeet Deo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sea Limited and Tencent Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on Activision and short January 2022 $75 puts on Activision. The Motley Fool has a disclosure policy.

Stocks Mentioned

Tencent Stock Quote
$39.83 (2.34%) $0.91
Sea Stock Quote
$59.76 (1.25%) $0.74
Activision Stock Quote

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

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