With the gaming industry set to hit US$200.8 billion in revenues by 2023, investors have plenty of opportunities to jump into the sector.
New gaming devices coupled with the advancement of existing gadgets have paved the way for the gaming industry to reach new heights in terms of market value in the upcoming years.
Gamers have been spoilt for choices in the last decade as game publishers have been releasing gaming titles across multiple platforms, including mobile, personal computers (PCs), tablets and consoles.
So how can investors get involved and potentially make a profit in this exciting and quickly developing space? Read on for a look at the digital gaming industry, including what makes it lucrative and what stocks and exchange-traded funds (ETFs) investors may want to consider.
Ways to invest in gaming: A rapidly growing market
China and the US represent the biggest markets for gamers, accounting for nearly half of total consumer spending. Looking forward, Newzoo forecasts that the worldwide gaming market will experience a compound annual growth rate (CAGR) of 8.3 percent to surpass US$200.8 billion by 2023.
This year, COVID-19 lockdown measures have been a key driver behind explosive growth in consumer spending on gaming for the year, especially in the mobile games sector.
“All game segments saw an increase in engagement and revenues as a result of the COVID-19 measures, but mobile gaming saw the biggest increase,” according to Newzoo. Mobile gaming is expected to account for 48 percent of the global gaming market in 2020, generating revenues of US$77.2 billion for a growth rate of more than 13.3 percent year-on-year.
Easier access to smartphones and coronavirus-induced closures for PC gaming cafes are two reasons the mobile games sector is enjoying more growth compared to PC gaming or console gaming.
In 2020, console gaming is predicted to grow at a rate of more than 6.8 percent year-on-year, reaching US$45.2 billion; meanwhile, PC gaming is projected to grow at a rate of 4.8 percent year-on-year to hit US$36.9 billion. The launch of next-generation gaming consoles from major companies in the space at the end of the year is expected to fuel overall market growth in 2021.
Ways to invest in gaming: The allure of esports
While the digital gaming industry has numerous subdivisions, it’s the popular esports arena that has been projected to witness the fastest growth.
Research and Markets expects this sector to experience a CAGR of 18.19 percent beginning in 2020 to reach a total value of US$2.40 billion in 2024. The firm attributes this impressive growth to the rising number of internet and smartphone users across the globe, as well as the “increasing adoption of virtual reality and augmented reality in the gaming industry.”
The three market segments with the highest revenues in the esports industry are sponsorship, media rights and advertising. In terms of geographic areas, North America, the Asia Pacific region and Europe are responsible for the lion’s share of the sector’s revenues due to their residents’ higher disposable income and faster adoption rates for smartphones.
While the COVID-19 pandemic has helped the esports market by increasing the gamer population, it has had a negative impact on the market when it comes to live events. This has led analysts at Newzoo to reduce their global esports revenue outlook for 2020 from nearly US$1 billion to US$950.3 million.
Even so, the firm notes that demand for esports products and live events remains strong, and some forward-looking companies in the industry are finding ways to adjust to the new normal. “Lost revenues from some streams may be recouped in other areas, as some companies are becoming savvier about the shift to digital,” states Newzoo.
Ways to invest in gaming: Stocks to consider
Stocks are often the popular choice for investors looking to make a gaming investment. Given that the industry involves multiple sectors, investors have plenty of options.
Of course, it’s important to be aware that both esports and gaming involve components apart from software. That means investors can look at related stocks, including NVIDIA (NASDAQ:NVDA), which makes computer chips, along with Microsoft (NASDAQ:MSFT) and Logitech International (NASDAQ:LOGI).
Microsoft and Logitech make components related to gaming, such as mice, keyboards and headsets.
Ways to invest in gaming: ETF options
Investors who want to enter the gaming space as a whole rather than focus on specific companies may want to put their money into an ETF. ETFs offer broad industry coverage and are known for being less risky — potentially an ideal option for newer investors who are less experienced.
The following three ETFs are the top options by total assets, according to ETFdb.com:
- VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO)
- Global X Video Games & Esports ETF (NASDAQ:HERO)
- VanEck Vectors Gaming ETF (NASDAQ:BJK)
Is there any particular stock or segment of the gaming industry that you’re interested in? Let us know in the comments below.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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