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How To Be Ahead Of The Game

If you spent hours on a gaming console while you were in lockdown, you’re not alone. Chris Smith of CMC Markets says gaming is booming, and investors can buy a piece of the multibillion-dollar action.

7 October 2021

Many industries have taken massive hits to revenue and earnings, but there are some winners from the Covid-19 lockdown measures.

One is that digital trends are booming around the globe.

With consumers stuck at home, gaming has grown in popularity and has quickly become a major force within the advertising landscape, too.

Gaming as an industry has multiple streams, including traditional gaming, eSports, hardware, cloud storage, streaming and graphics chips.

Even before the pandemic, eSports and gaming had exploded into the mainstream with rates of online play-time skyrocketing, live-streams watched by millions around the world, and even stadiums full for tournaments in recent years.

To get a better understanding of this enormous scale of growth, the 2019 Super Bowl got an estimated 98 million unique viewers. The year before, a more niche League of Legends eSports event got an impressive 60 million unique viewers.

This surge in online gaming and streaming via platforms from major players YouTube and Twitch has boosted the appeal and interest for investors wanting exposure to this industry.

Gaming

Many people remember the pioneering games that started the gaming revolution – Atari joysticks and Nintendo Game Boys. These days, technology and devices produced by Microsoft and Sony are incredibly different and connect more players than ever before.

According to research from Newzoo, worldwide video game sales totalled US$148.8 billion last year, rising 7.2 per cent from the year before. This year, it estimates the global video game market will increase to US$159.3 billion in revenue.

Platforms such as YouTube and Twitch are now competing with streaming services like Netflix and traditional TV for viewership.

Twitch is a video live-streaming service for gamers which was bought by Amazon for US$970 million in 2014, ahead of the gaming boom.

In the second quarter of 2019, Twitch viewers live-streamed more than 2.72 billion hours, surpassing YouTube Live and Facebook Gaming.

It’s now estimated to be worth around US$4 billion, with an average of 15 million viewers tuning in every day.

eSports

Typically played by professional gamers, eSports are multiplayer video games played on a competitive field.

eSports have been on a growth trajectory for many years, largely driven by fans in Asia and an increasing number of news articles highlighting the major prize pools won at eSport battles.

Other research from Newzoo suggests that this year the number of eSports viewers worldwide will reach 589 million, from 380 million last year.

Business Insider intelligence has released a report saying that total eSports viewership is expected to grow at a 9 per cent compound annual growth rate (CAGR) between 2019 and 2023, from 454 million to 646 million viewers.

Many advertisers are now shifting their spend to new eSports digital mediums to target its large and growing audience of millennials who were previously hard to reach.

Last year, eSports revenue from sponsorships, media rights, advertising, game publisher fees, merchandise and ticket sales totalled $1.1 billion, up 26.7 per cent.

How to invest in gaming

For investors, the video game market consists of buying shares of the ‘pure play’ game publishers that focus on a specific product or activity or buying tech shares that have varying exposure to the gaming industry.

These companies could be distributors, streaming services, hardware developers, game publishers, or software developers.

Ones to watch

Here are some of the major game developers and publishers to keep an eye on and the exchanges that list them:

  • Activision Blizzard Inc. (NASDAQ-listed)
  • Electronic Arts Inc. (NASDAQ-listed)
  • Tencent Holding Ltd. (SEHK-listed)
  • HUYA Inc. (NYSE-listed)
  • Nintendo Co. Ltd. (TYO and NASDAQ-listed)
  • NetEase Inc. (NASDAQ-listed)
  • Sea Ltd. (NYSE-listed)
  • Take-Two Interactive Software Inc. (NASDAQ-listed)

Major tech firms have also provided a safer way to get into the gaming industry, which couldn’t otherwise be serviced without the support of major cloud storage companies like Amazon, Alibaba Microsoft (MSFT) and their own gaming development at Microsoft, and Google parent Alphabet (GOOGL).

For investors interested in this industry who don’t know where to start or which company to pick, exchange-traded funds (ETFs) and share baskets are a good place to start.

Similar to ETFs, share basket products allow investors to diversify risk within an industry by trading on a selection of shares from the same industry grouped into one basket, as opposed to trading on a single share.

Examples are baskets for gaming, streaming, remote lifestyle, and driverless cars.

ETFs and basket products

You may want to research these ETFs and basket products:

  • Wedbush ETFMG Video Game Tech ETF
  • VanEck Vectors Video Gaming and eSports ETF
  • Roundhill Bitkraft eSports & Digital Entertainment ETF
  • Roundhill Sports Betting & iGaming ETF
  • CMC Markets Gaming Share Basket

Looking ahead

The gaming industry has many different stakeholders driving its growth.

When hit augmented reality game Pokémon Go launched in 2016, it became the largest revenue-earning game in its first month, with an estimated 1.5 billion gamers around the world.

In 2019, Google released Stadia, a cloud gaming service that allows gamers to play without a console, rather than via traditional Sony and Xbox consoles.

Looking ahead, commentators predict there will be an estimated 4.1 billion active smartphone users in the world by 2023 – all connected to the internet.

Mobile is the largest gaming platform, producing US$68.5 billion in revenue in 2019, which is nearly half of the total market including PC and tablet gaming.

Growth is expected to double as 5G penetration increases globally, and areas such as virtual reality continue to evolve.

Internet, mobile connectivity, and graphic chips keep improving. Even car manufacturers like Tesla are installing games in their vehicles by default.

A simple Google search of an eSports live event will gauge the scale of growth in this multibillion-dollar industry.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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