Esports stock. Image: WePlay Holding

Esports stock: Investing in esports as a portfolio option - learn the advantages

Aug. 11, 2021
Education 14 min read

Which video game companies offer shares?

With the fast-paced growth of competitive gaming and other aspects of the esports industry, it’s become clear that, rather sooner than later, acquiring shares or stocks of companies working in this scene is not only a viable option but a desirable one. Many of the titles are bundled together by various large holdings. For instance, Overwatch, Hearthstone, Call of Duty, World of Warcraft, Diablo, Starcraft, and Heroes of the Storm are all held by the same company: Activision Blizzard Inc. The same happens with other popular games, such as League of Legends, Fortnite, Playerunkown’s Battlegrounds, and Honor of Kings, all of them held by Tencent Holdings Limited. EA (Electronic Arts Inc.) also has shares available. There are many other companies with shares that are associated with video games, but we will focus on these three.

This is one way to invest in esports — by investing into well-established organizations through the stock market. There are many others for you to keep your eye on, but we will get to that later. In general, knowing which games are popping off in the audience and player base charts is a good marker to help you understand whether the stock is reliable or risky.

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Esports stocks are a trend now more than ever

Video game stocks are discussed a lot in 2021 after what happened to GameStop (GMO) and the story going viral. However, if you’re looking to invest in esports, it’s important to know that sort of action isn’t something that will happen twice (probably. We can’t be 100% sure about anything in this matter!), but it went down in the history of the stock market, changing the perception about most of the assets — not only those related to video games. Add that to the Covid-19 pandemic, and you’ll come to the conclusion that gaming and esports are a very hot topic at the moment.

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Esports stocks have been considered risky by many specialists, with a lot of companies having a long-term growth forecast. However, in part due to the coronavirus pandemic raising the interest in video games, the top companies are steady and there’s room for earning in a short space of time. Due to the substantial cultural changes we’re facing due to the situation mentioned above, it’s unlikely that the interest in gaming and esports will wane, meaning that esports stocks will be a trend, even more than they already are.

While it’s difficult to recommend investment strategies, there are some basics that never change: keep your money safer by diversifying your portfolio, always take care when investing a bigger amount of money, and use a trusted platform/broker to keep your earnings. Different forms of investing, such as day trading, aren’t recommended unless you’re an expert — you could lose a substantial sum of money if you’re not quite sure what you are doing (and sometimes even if you are). Let’s consider the first tip for investors regarding their money.

Portfolio diversity

Most experienced investors and specialists already know this, but if you’re new to the field, remember to diversify your portfolio. That means investing a little here, a little there creating an investment strategy that will compensate for eventual losses and maximize your gains. It’s only logical: if you put all of your money in one bag and lose it, the loss will hurt much more than if you had 10 bags. Losing two bags is much harder than losing one, right? The same logic applies to investments.

If you’re planning on such a diverse portfolio, video game or esports stocks are definitely an interesting option; they’re hot right now, and that growth doesn’t seem to be slowing down. Video gaming has become a very regular pastime for many, and that’s unlikely to change even in the next years, so now could be the perfect time to get into the esports stock market as a way to further expand your portfolio!

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The video game industry is highly diversified itself: you can invest in esports teams, companies, exchange-traded funds (ETFs), and more. Owning stocks is just one of the ways to invest in esports, but with that in mind, its steadiness can be a great motivation to dive into the matter.

Regular stocks

As mentioned, major companies are something to keep an eye on. You can evaluate their revenue and earnings growth, price-to-earnings (P/E), and price-to-sale (P/S) ratio in order to have a better understanding of which one to choose to put your hard-earned money in. In general, these are the steps of fundamental analysis. As we can see, esports stocks are still a young market and there are not many criteria to evaluate them other than the above, so caution is always recommended. Thus, let’s consider those indicators.

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Revenue growth

One of the major indicators when evaluating the trend for a particular company is its revenue growth. It’s not rocket science: you basically compare two (or more) companies in the same field and see how their revenue graphs are going. This way you can effectively understand if they’re growing organically or if their growth is merely a reflection of the industry trend. It’s important to see whether the growth is just a reflection of the industry because the overall company performance has more influence over long-term prices than the industry growth. It’s not only because a specific company is into esports that it makes for a great investment.

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Price-to-earnings ratio (P/E ratio)

One of the most common mistakes you can make while investing is thinking only about the stock price without looking at how it compares to the company earnings; this way, you can’t understand whether a price is inflated or represents a fair ratio within the company earnings. This is a basic method of fundamental analysis and will not always show a definitive result, so make it a point to further investigate the matter when deciding which esports stocks you will get. Calculating the P/E ratio is not super challenging, and you’ll have a better perspective of what growth percentile this stock has to offer.

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Price-to-sales ratio (P/S ratio)

Even though the price-to-earnings ratio is a good measurement, it’s not always correct. Sometimes a company’s earnings can be too irregular for proper use of the P/E ratio. In that case, you can calculate the P/S ratio, which divides the company’s valuation by its annual revenue. In order to have a better understanding of this ratio, you may do it for all the companies in the esports world you’re interested in; this ratio can be a guideline to see how the companies are actually positioned in comparison to one another.

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Strong companies offering esports stocks

Now that you know what to calculate and how to analyze the stock price, let’s understand why we mentioned three companies in the beginning. Please note that we won’t mention gaming companies that are not into esports, such as Take-Two Interactive Software Inc. (owner of GTA V, among others) — their stocks are worth analyzing, too, but our objective here is to focus on esports. Take-Two Interactive specifically is a very interesting company you’d want to add to your watchlist as well, but as they’re not in the esports market (yet), so we will not delve into them too much.

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Tencent Holding

Every gaming aficionado has heard of League of Legends and Fortnite. The former is the most-watched PC game in the entire world, constantly the #1 on different streaming platforms such as Twitch, YouTube, and Facebook; Fortnite has a loyal public, and while it’s a younger game if compared to League of Legends, its numbers are also impressive. Moreover, if you don’t know what Honor of Kings is, maybe it’s time to dive into mobile esports — in China, it’s the most-watched game by far. The second place? PlayerUnknown’s Battlegrounds (PUBG) Mobile, also supplied by Tencent.

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Tencent is a giant Chinese media conglomerate that has stakes in all of these games, League of Legends and Honor of Kings being its property. It’s a tech juggernaut with arms that reach far beyond gaming — it even owns a social media platform (WeChat).

Considering its momentum and how Honor of Kings has been a hit while League of Legends is possibly the most successful game of all time, it’s hard to avoid stating that Tencent is the most prosperous company in the gaming industry right now. The biggest esports teams specialize in their games, they’re proactive and imaginative with their media campaigns, and the Chinese gaming market is huge if we think about revenue.

Activision Blizzard

One of the first esports companies ever, Activision Blizzard is well-known for holding amazing intellectual property, which includes games such as Overwatch and World of Warcraft. With the success of Call of Duty, especially its mobile version, Activision Blizzard managed to keep their status as a leading video game company, despite the decreasing active player numbers in the company’s most well-known game — WoW. The Overwatch League was also an incredible success with the both audience and players, but it’s risky to say how it will fare against strong competitors such as Valorant or Apex Legends.

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However, Activision Blizzard has always taken the first step, if we talk about professional competitions and esports tournaments. A fair share of the company’s success stems from its agility when aiming for new horizons in the esports, media, and video game industries. Their conference, BlizzCon, is one of the most anticipated events in the gaming world yearly, and they’ve emerged strong on the other side of the coronavirus pandemic with barely a few scrapes. They sure are part of the conversation if we discuss esports stocks — you never know what’s new in their sights.

Electronic Arts (EA)

Traditional sports audience is an important metric for esports as well. A lot of people like to watch professional sports such as football or basketball, and many count video games among their interests, too. That’s one of the spots where Electronic Arts comes in.

A pioneer in sports games, EA managed to create spicy esports for that public. Their most famous titles include FIFA and Madden, two of the top-selling games every year. During the pandemic, Electronic Arts created a lot of interesting activities. The NFL Pro Bowl in 2021 will be disputed through Madden, and the players will face one another virtually instead of physically. That alone shows how much success the company achieved with its titles.

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With a very large portfolio, Electronic Arts also owns stakes in Apex Legends, another game that competes against Overwatch and Valorant. Those games are also playable on multiple platforms, not only on PC, and their competitive circuits are generally open to the public, making it easier for them to connect with the game in question. Entertaining and embracing a very diverse audience, from casual gamers to hardcore professionals, has led EA to figure in our top 3 esports stocks to watch.

Different ways to invest in esports

If you’re not into the esports stocks market or not entirely convinced that it’s a good idea to buy shares from the current perspective, you can check some other popular ways to invest in esports. As we mentioned before, portfolio diversity is very important for investors — and the value may range from small amounts to millions of dollars.

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Exchange-traded funds (ETFs)

As we previously mentioned, one of the most common ways to invest in the esports and gaming industry is through exchange-traded funds (ETFs). To explain briefly, ETFs are funds that track a specific index of a major stock exchange; they are good for people with lesser amounts of available initial capital, meaning their accessibility is really an advantage (especially when compared to mutual funds such as the S&P 500 — which has its own ETF as well, amusingly enough). In the gaming scene, ETFs are a major indicator, since it’s possible to track tendencies and be somewhat aware of what’s going on while profiting without buying a large amount of shares.

The most well-known gaming ETF is the ETFMG Video Game Tech ETF. As you can see on the charts, the ETF’s value has surpassed S&P 500 over the years in growth, meaning, in a way, that the esports industry and stocks are catching up with the 500 biggest companies in the world. The mentioned companies (Activision Blizzard, Electronic Arts, and Tencent Holding) are a large part of the success.

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Crypto-based games

With the explosion of NFTs and cryptocurrencies, one of the ways to reconcile those two market sharks (gaming and crypto) is through playing games that have connections with both. Their economies are entirely blockchain-based, meaning you can get to know a bit more about investment while having fun playing a video game!

A good example is Gods Unchained, a card game where each collectible card has a foundation in blockchain, meaning that outside the gaming world, their value is real. Holding the cards of such a game may be a good idea if you’re interested in very risky assets (although they come together with a lot of fun!).

While they aren’t a direct investment option like esports stocks, crypto-based games — especially games or streaming services that reward you with NFTs for playing them — are a new opportunity within the gaming world that should expand it even further. Being aware of news on this subject may help you get a deeper comprehension of how gaming can transcend its own borders.

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Investing in tournaments or events

If you represent a company, one of the greatest ways to improve your branding while getting on the bandwagon of this fast-growing industry is through investing in events, tournaments, or shows. WePlay Esports offers a wide range of opportunities for that and can increase your brand’s reach and help you get in touch with esports teams, the public, and players.

Even non-endemic companies are taking those opportunities to further increase their marketing options and strengthen their brands. Well-known investors in this field include large organizations such as Red Bull and Nike, but esports is a receptive niche and even smaller brands can profit from a well-planned marketing strategy.

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Information: the key to success in the stocks market

Like with many things in life, information is very important when you decide to start investing or further improve your portfolio of shares. That’s why it’s highly recommended that you keep reading and learning about the market and the companies, as well as gaining some knowledge of macro and microeconomics. It’s not that easy to become a successful investor!

Esports stocks are becoming more and more popular due to how well the industry has reacted to the pandemics and how it shows measurable growth even through it. It’s a very interesting opportunity to become a stockholder, but always keep in mind that you should be cautious when investing your money, be it in esports stocks or anything else. Every little bit of information matters!

Buying a company’s shares can be a difficult and overwhelming task, especially if it’s your first time. Therefore, knowing a bit more about the entertainment, media, and esports world may help you decide whether to invest. That’s why WePlay Esports offers a wide range of articles covering all sides of this omniverse! Tune in and don’t miss an update about gaming, esports, and tournaments!

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