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With fast-growing global revenue and a rush of companies jumping in to get a piece of the expanding market, esports has become a hot topic. Strange as it might sound, coverage of other people playing video games has already demonstrated impressive pull as spectator entertainment -- and it has a huge runway for growth.
The market for watching pros play video games is growing rapidly, but it's still young and waiting to be defined in many respects. The industry’s nascent state makes growth difficult to forecast, and projections vary greatly depending on how they define the market and other factors. However, most expectations point to rapid growth. Esports and gaming video content already have a large audience, and there's a lot of opportunity to continue expanding that reach, developing compelling content, and honing lucrative marketing strategies.
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The video game industry as a whole tends to be higher risk than the market at large. Still, even more conservative investments, such as telecoms like Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T), will have some overlap with the esports space; both have entertainment industry components and distribute third-party content to users through the internet.
Investors who own a diversified portfolio of stocks probably already have holdings in companies with at least a small degree of exposure to esports -- particularly investors who own exchange traded funds (ETFs) that include video game companies, such as ETFMG Video Game Tech ETF (NYSEMKT:GAMR).
In addition to ETFs that bundle a variety of gaming and esports stocks together, investors should also look at individual companies in the space.
|Company||Key Strengths||Big Franchises|
|Activision Blizzard (NASDAQ:ATVI)||Has one of the strongest overall franchise catalogs in the video game industryImpressive history of creating new intellectual propertiesAt the forefront of creating organized esports leagues that attract professional ownership, broadcast partners, and advertisers||Overwatch, Call of Duty, Starcraft, World of Warcraft, Hearthstone, Diablo|
|Tencent Holdings (OTC:TCEHY)||Strong catalog of video game franchisesInvestments in (and partnerships with) many gaming companiesOwns and operates streaming and social media platforms that could help bolster its esports efforts and overall business||League of Legends, Honor of Kings, Player Unknown's Battlegrounds, Fortnite|
|Take-Two Interactive (NASDAQ:TTWO)||Impressive history of extending the life of its franchisesDevelopment teams with great track records that have created some of the biggest properties in the gaming industry||Grand Theft Auto, NBA 2K, Red Dead Redemption, WWE 2K|
|Electronic Arts (NASDAQ:EA)||Leader in the sports-game genreStrength in licensed content creates the potential to bridge fans of established franchises and sporting leagues into the esports space||FIFA, Madden, Battlefront, Star Wars, Apex Legends|
|Huya (NYSE:HUYA)||Leading gaming video streaming company in the Chinese marketChina will likely be one of the biggest growth markets for esportsBenefits from the success of other companies’ video game franchises||N/A|
Data sources: Company websites
Activision Blizzard (NASDAQ:ATVI) has made a more aggressive push into esports than most other video game companies. The publisher's enthusiasm makes a lot of sense. It's got an impressive history of building highly engaged communities around its titles, and it owns a range of original properties that are a natural fit for professional competitive gaming, including Overwatch, Starcraft, and Call of Duty.
Activision Blizzard's games have consistently ranked as some of the most watched on Amazon's (NASDAQ:AMZN) Twitch platform, and the publisher has been one of the most proactive companies in building the league structures that could be key in taking esports to the next level.
Tencent Holdings (OTC:TCEHY) is a highly diversified Chinese tech stock and media giant, with performance subject to a wide variety of projects and investments in areas outside of gaming and esports. At the same time, few competitors have an edge over the company in either of those categories.
Tencent's status as a massive media conglomerate with stakes in many leading gaming companies (and hit titles of its own, including Honor of Kings and League of Legends) makes it a great means of investing in the overall momentum of video games and esports. Further strengthening its hand, Tencent can use its WeChat social media platform to feature and distribute content and take advantage of payment processing for in-app services and advertising opportunities.
Take-Two Interactive's (NASDAQ:TTWO) esports push is at a less developed stage than those of companies like Activision, EA, and Tencent. However, there's considerable appeal in the thought of what the company's top studios could accomplish in the competitive gaming space.
The company's hugely popular Grand Theft Auto series hasn't waded into the world of esports, but GTA V’s online mode generated fantastic player engagement -- suggesting big esports potential. Take-Two has mostly leaned on its NBA 2K basketball series to spearhead its push into esports, and the hugely popular series has a lot of potential in the fast-growing content category.
There's a lot of crossover between the audiences of sports leagues and video game enthusiasts, and Electronic Arts' (NASDAQ:EA) strong position in licensed content gives it the potential to tap into existing fan bases and develop new ones. Madden and FIFA stand as some of the biggest franchises in gaming, and EA has also been scoring wins with original properties such as Apex Legends and making intriguing moves to turn its franchises into esports leaders.
EA has taken a different approach to esports than many of its competitors. Instead of focusing on professional leagues, it's often made tournaments accessible to all players. The approach is pretty interesting because it directly encourages player engagement -- and therefore also in-game spending.
Huya (NYSE:HUYA) is a Chinese gaming video content streaming company that runs a platform allowing users to broadcast their gaming sessions to large audiences. China is already one of the biggest markets for esports content, and it will play a key role in the growth of the overall professional gaming and gaming video content industries.
Huya makes money by allowing viewers to tip broadcasters and then taking a portion of the contributions. It also has a small but fast-growing advertising segment. In addition to user broadcasters, the company is also hosting its own events and signing exclusive deals with esports leagues and organizations for coverage.
Investors might wonder how to profit from a business built on audiences watching others play video games. Esports companies make money through broadcast licensing deals, merchandise, live-event ticket sales, sponsorships, advertising, and other channels. Companies can also sell exclusive rights to operate esports teams within official leagues, and competitive gaming leagues can function as advertisements for the underlying titles.
The esports market is still young, and that means it's likely to see some significant twists and turns. Individual companies and projects within the space could have high failure rates, and more risk-averse investors might find the esports business unappealing for that reason. But there are a few indicators of a great esports company. If you keep an eye out for these, and you may find a fruitful stock.
While esports has come a long way in a relatively short time, it's still a very young category with tons of untapped potential. That makes it an exciting, risky, and potentially very profitable area for investments. Companies will face challenges developing their esports businesses, but approaching the video game industry and esports investments with a buy-to-hold mentality could deliver big returns if they continue on their current trajectory.
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