video game

With the introduction of computers came the introduction of video games. The ability for games to exercise the creativity and problem-solving skills of gamers to beat the game or trump their opponents has brought in great appeal from the public.

Nowadays, the gaming and esports industry is valued at almost $137.9B globally. Further, this is projected to increase 10.3% Year over Year (YoY), which is larger than traditional sports leagues like the NBA, NHL, and MLB. This sparks the question – how do investors get in on this booming industry?

This blog post will help current and potential investors understand where they can put their hard-earned cash to capitalize on the growth within the industry.

Primary investment vehicles

There are 4 main ways to invest in the gaming industry, as well as 2 pseudo-opportunities that people could call investing within the industry. Let’s start with that first group.

1. Investing in hardware companies

Video games can now be played anywhere and everywhere. Thanks to the introduction of smartphones and fast internet, bridging the real world to the virtual world has never been easier. However, video games are requiring more and more processing power to render the stunningly realistic gaming environments smoothly.

This group of investment opportunities are the physical devices that gamers use to play their games on. As an analogy, when you think of Hardware companies, think of the TV or phone you use to watch a normal sports game.

Within this category exists 3 main types of devices used for gaming:

  1. Console gaming: This group represents 25% of the total market. Its value stands at $34.6B and is expected to grow 4.1% YoY. Console gamers include players on the Xbox, Nintendo, and PlayStation platforms, which have largely dominated the industry.
  2. PC gaming: PC stands for “Personal Computer,” which means gamers are using their laptops and/or desktops to play games. Within the PC gaming world exists accessories that include mechanical keyboards, ergonomic gaming mouses, and high-quality audio headsets. All of these are used to enhance one’s gaming abilities. Currently, PC gaming is valued at $32.9B, represents 24% of the industry, and is expected to grow 1.6% YoY.
  3. Mobile gaming: This platform has seen a sharp increase in popularity, and it is driving growth within the gaming industry. With most North Americans having access to a smartphone and increasingly addicting games popping up in the App Store, this platform has grown to include 51% of the market. It is valued at $70.3B and is expected to grow 25.5% YoY. It is expected to reach $100B by 2021. Big winners of this growth explosion include Apple and Google. These companies own the Apple App Store and Google Play store, respectively, and take up to 30% of the revenue generated by game developers who list their apps on the store.

2. Investing in publisher/developer companies

Developers are the content creators of the industry. They take ideas and turn them into reality, using the latest technology to create fun, stimulating gameplay intended to attract and retain people’s attention. In a similar analogy, the developers serve as the inventors of their games. They also often play the role of referee, as they are tasked with maintaining good behaviour within their gaming communities.

Notable companies within this space include Tencent Holdings, the Chinese conglomerate who has a hand in games like League of Legends – the most popular PC game – and Clash of Clans – a popular mobile game. Its rival Activision-Blizzard has many popular games like Hearthstone, World of Warcraft, Overwatch, and the famous Call of Duty series. Other notable companies include Electronic Arts, Valve, Ubisoft, Sony, Nintendo, Rockstar, and many more.

Overwatch has proven itself yet another massive hit from Blizzard Entertainment.

3. Investing in community companies

Investing in communities has sparked the attention of companies like Amazon. In 2014, Amazon entered the space through their acquisition of Twitch.tv – a website where gamers can watch others play games – for $970M. This group of companies allows people to connect and communicate with like-minded gamers. The space fosters a sense of community and pride in being a gamer.

Notable companies within this space include independent websites like IGN, owned by J2 Global; Enthusiast Gaming, which has a portfolio of over 80+ companies, attracts over 75M monthly visitors to its websites, and hosts the largest gaming conference in Canada, with over 30k attendees in 2018; and Discord, a communications platform that gamers can use to live voice chat with one another while in-game.

4. Investing in gaming teams

There are many well-known gaming teams within the industry. Like sports franchises, it is difficult to find publicly-owned teams. These franchises operate multiple professionally-managed teams, with each team specializing in one game. Teams compete at tournaments and can win millions of dollars in prize money.

Pseudo-opportunities

There are also 2 pseudo-opportunities for investment into the gaming space: cryptocurrency and in-game markets. We’ll briefly touch on both of these.

With the introduction of a de-stabilized currency came the introduction of companies who wanted to take in-game currencies (think gems in Clash of Clans or IP in League of Legends) and turn them into real money that can be used at your local grocery store. Cryptocurrency is the result of this effort. It is currently at a very preliminary stage and will be interesting to watch in the future.

Meanwhile, in-game markets are marketplaces that allow for individual gamers to buy, sell, and trade in-game items for real money. Examples of this would include the in-depth Steam marketplace, where in-game skins for Counter-Strike: Global Offensive guns could be valued in the thousands of dollars. This type of investing would require an extensive amount of knowledge about the game, rarity, and the condition of the items they are selling to come up with a fair price for the item.

This rare CS:GO weapon skin sold for over $60K last year.

Learning more

All in all, the gaming/esports industry is booming, with plenty of opportunities to invest in it. If you’re interested in a diversified approach to investing in this industry, the Evolve E-Gaming Index ETF (TSX Ticker: HERO) may be the right investment for you. HERO gives investors access to equity securities of companies, listed domestically and globally, with business activities in the gaming industry. This ETF invests in companies involved in hardware, software and services relating to the electronic gaming industry. Learn more about this fund by clicking here.

About Evolve ETFs

Evolve is one of Canada’s fastest-growing ETF providers since launching its first suite of ETFs via the Toronto Stock Exchange on September 2017. Evolve is a leader in thematic ETFs and specializes in bringing innovative ETFs to Canadian investors. Evolve’s suite of ETFs provide investors with access to: (i) long term investment themes; (ii) index-based income strategies; and (iii) some of the world’s leading investment managers. Established by a team of industry veterans with a proven track record of success, we create investment products that make a difference. For more information, please visit www.evolveetfs.com.

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