How To Invest In eSports

Back in 2015 analyst Colin Sebastian predicted eSports would be a $145 billion dollar industry by 2020. 

Many Vancouverites were only turned onto this sector recently as The DOTA 2 world championships were held at Rogers Arena in Vancouver last month month. Top prizes ranged in the $20 million area. The Aquilini family who owns the stadium were in attendance, they were so impressed at the event that they acquired an expansion slot in Blizzard Entertainment’s professional Overwatch League.

DOTA 2 and Fortnite are 2 of the most popular games on the market now. Fortnite reported $318 million in revenue in the month of May 2018 alone. Our friends at Equity Guru wrote a piece recently that compares eSports in 2018 to cannabis in 2015.

Here are two exciting eSports companies to watch:

Tencent Holdings (TCEHY .Q)owns Riot Games, whose League of Legends is one of the world’s most popular games and the basis for the League of Legends Championship Series esports league.

Tencent is a key esports holding because it offers exposure to China, its home country.

China has by far the largest gamer base in the world at an estimated 442 million gamers. This year, China will contribute a third of the global game industry’s total revenue. Tencent also has a lucrative agreement with Disney for streaming and broadcast rights for League of Legends that lasts for the next 5 years, it’s also launching a competitive-gaming television channel in China.

Activision Blizzard (ATVI.Q) owns the Overwatch League who currently has 12 teams, soon to be 28. They are also currently building an esports league for Call of Duty.

They also already has a popular mobile game in Candy Crush, brought in an estimated $930 million in revenue over the 12 months preceding July 2018.

A key source of growth will be the conversion of PC- and console-based titles into mobile games. Mobile is huge in China. So this could give it a greater presence in China, where the company hopes to expand via a partnership with NetEase NTES, -1.03%

Another catalyst for the stock should be the release of “Call of Duty Black Ops 4” in October.

“We believe Activision is building a Disney-style entertainment business for the 21st century, but with higher operating margins,” says Jefferies analyst Timothy O’Shea.

Why Esports

For people who aren’t into video games, this industry may seem odd. For those who are involved in it, it becomes a lifestyle that users invest in greatly, the games are generally free, but add-on skins (costumes) or weapons are purchased, this is how these companies generate a large portion of their revenue.

It’s still unclear as to how a eSports and the world of pubco’s will mix, but it definitely looks in the cards in the near future as the revenues, interest and growth potential are all abundant. This is an industry investors need to keep an eye out for.

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