Investors that know a global trend when they see one even in the bud now have a chance to hit on the stock market’s dark horse. ESports is a new investment idea that in the long run can bring profits above the market average. Why do we think so, and which companies in the industry can be recommended for your investment portfolio?
Most people still share a stereotype about eSports being kid’s stuff. Serious business leaders still often find it strange to invest in “toys.” However, facts tell us that eSports has long been an investment idea with high potential. The sector’s audience and capitalization are growing rapidly. Here are some figures that support these findings. The global videogame industry has about 2.5 bln users worldwide. In other words, every third person on Earth plays a videogame from time to time. There are about 65 mio gamers in Russia. The growth rate of the eSports audience is approximately 20% per year, both in Russia and in the world.
Revenues in the industry are estimated at $150 bln – 50% more than the proceeds from films. Goldman Sachs predicts a 350% growth of the global videogame market over the next five years. This is not surprising – the popularity of new games is already exceeding Hollywood blockbusters. For example, in 2018, Red Dead Redemption 2 raised $725 mio over the first weekend – no film has ever shown this result.
Naturally, investments in this sector are also growing. In 2014, Amazon bought the Twitch media streaming platform for $1 bln. Games are actively raising funds from advertisers. According to PWC estimates, in 2018, companies spent more than $530 mio on sponsorship and advertising contracts, up 40% over the year.
So in the five years’ horizon, eSports will be one of the fastest growing market segments. Who will benefit from this? Manufacturers of games and online videos, social platforms for gamers, as well as hardware manufacturers. This means that these companies’ securities will show the highest dynamics compared to other segments of the market.
Even now, one can pick some of the most promising companies in the industry. For example, China’s Tencent, a manufacturer of game content, owns the companies that founded The League of Legends tournament at the 2018 Asian Games – an eSports demonstration event. US Activision Blizzard has a library of several hundred items, including well-known games such as Call of Duty, Warcraft, StarCraft and others.
Amazon is the leader among the streaming services and the owner of the Twitch platform, which accounts for more than half of videogame content. Amazon is also developing a project to introduce cloud services into the playing process. In the segment of equipment manufacturers, one should definitely note NVIDIA – the global leader in graphics card.
Admittedly, buying these issuers’ papers through a broker can be a rather risky investment. For those who want to minimize the risks, we can recommend capital-protected products such as structured life insurance instruments that combine high-yield and risk-free investments. Such products have lower profitability, but also low risk. This strategy applied in the videogame industry has shown a yield of 10% in the first seven months of this year.
By Dmitry Nuriakhmetov, CFA, Head of Investment Management, Rosgosstrakh Life