Here’s how to invest in esports.
Video gaming has evolved far beyond gamers sitting at home playing on their consoles. In the past several years, online gaming, streaming and esports have become part of a booming business. Global esports industry revenue should surpass $1 billion for the first time in 2021 and hit $1.8 billion in 2022, according to projections by esports analytics firm Newzoo. Media rights, ticket sales and sponsorship and advertising deals account for the majority of esports revenue, but the entire gaming industry benefits from the popularity of esports. Here are seven top analyst-recommended stocks to buy with skin in the esports arena.
Activision Blizzard Inc. (ticker: ATVI)
Activision Blizzard is the world’s largest independent video game developer. The company restructured its esports division in March. The division runs the popular Overwatch League and Call of Duty League, esports leagues that hosted massive live events prior to the pandemic. Morningstar analyst Neil Macker says recent allegations of discrimination and harassment at Blizzard have overshadowed solid growth numbers for the company. Macker says social distancing helped Overwatch League engagement, but the highly anticipated launch of Overwatch 2 has been delayed until at least early 2022. Morningstar has a “buy” rating and a $97 fair value estimate for ATVI stock, which closed at $75.08 on Sept. 28.
Sea Ltd. (SE)
Sea owns e-commerce platform Shopee, digital payments platform AirPay and game publisher Garena. Garena has been a huge success, thanks to hit game Free Fire, which is tremendously popular in Southeast Asia and Latin America. In 2019, the first Free Fire World Cup attracted more than 27 million online views and had more than 1.1 million peak concurrent YouTube viewers. Bank of America analyst Sachin Salgaonkar says expansion into the U.S. and India could drive earnings upside for Sea in the next 18 months. Bank of America has a “buy” rating and a $380 price target for SE stock, which closed at $316.72 on Sept. 28.
Take-Two Interactive Software Inc. (TTWO)
Take-Two Interactive Software is a video game publisher and owner of popular franchises including Grand Theft Auto, Red Dead Redemption and Borderlands. One of the company’s most successful esports ventures has been its 2017 partnership with the National Basketball Association to create the NBA 2K League. In 2020, NBA 2K League Twitch viewership was up 69%, highlighting its tremendous growth trajectory. Macker says NBA 2K is the most popular sports video game in the U.S. and China and is Take-Two’s largest annual game franchise. Morningstar has a “buy” rating and a $200 fair value estimate for TTWO stock, which closed at $149.11 on Sept. 28.
Electronic Arts Inc. (EA)
Electronic Arts is the second-largest independent video game developer. EA has hosted major esports tournaments for franchises FIFA, Madden NFL and Apex Legends. As of the end of fiscal 2021, EA reported that Apex Legends had reached 100 million players over the game’s lifetime. CFRA analyst John Freeman says EA is a great investment, thanks to its valuable brands, its unique professional sports league relationships, its attractive valuation and its financial flexibility. Freeman projects 13% compound annual revenue growth for EA over the next three years. CFRA has a “buy” rating and a $174 price target for EA stock, which closed at $133.77 on Sept. 28.
Roblox Corp. (RBLX)
Roblox is a company with a platform that allows users to make their own games, interact and play in real time over the internet. These worlds have become known as the “metaverse,” and they could ultimately take esports to the next level in the long term. Freeman says Roblox is one of the most innovative companies with exposure to the gaming industry, and he projects impressive 33% compound annual bookings growth over the next three years. Freeman says Roblox has a unique community of more than 8 million player-developers. CFRA has a “strong-buy” rating and $96 price target for RBLX stock, which closed at $77.05 on Sept. 28.
Amazon.com Inc. (AMZN)
In addition to its industry-leading e-commerce platform and its Amazon Web Services cloud computing business, Amazon is also the parent company of leading esports and video game streaming platform Twitch. Twitch generated an estimated $96.8 million in app revenue in the second quarter of 2021, up from just $10.1 million in the second quarter of 2019. Morningstar analyst Dan Romanoff says Amazon’s dominant position in e-commerce and its fast-growing advertising and cloud businesses will continue to serve as bullish catalysts for the stock. Morningstar has a “buy” rating and a $4,200 price target for AMZN stock, which closed at $3,315.96 on Sept. 28.
Outside of Twitch, Alphabet video platform YouTube is the top place for esports fans to watch the latest pro tournaments for games such as League of Legends and Counter-Strike: Global Offensive. Like Twitch, YouTube Gaming currently accounts for a relatively small part of Alphabet’s overall business, but esports could end up being a much larger contributor in the future. Bank of America analyst Justin Post says better-than-expected cloud, YouTube and search growth coupled with elevated buyback activity is a winning combination for Alphabet investors. Bank of America has a “buy” rating and a $3,150 price target for GOOGL stock, which closed at $2,716.60 on Sept. 28.
Best esports stocks to buy:
— Activision Blizzard Inc. (ATVI)
— Sea Ltd. (SE)
— Take-Two Interactive Software Inc. (TTWO)
— Electronic Arts Inc. (EA)
— Roblox Corp. (RBLX)
— Amazon.com Inc. (AMZN)
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