📈 Esports and Gaming Investor Report [2020-2021]
Do you want to put money into this ever-growing industry?
Great. Here’s your 2020-2021 Gaming Investor report.
Industry experts have shared their insights on top trends and forecasts for recent years.
Just remember, Gaming it’s no longer child’s play. It had become one of the most profitable businesses to be part of, so don’t doubt if everyone now wants to be involved in it.
Of course, this pixelated Cornucopia also possesses a few concerning issues around it, which are going to be discussed today as well. That’s why we’ll start with the following to-be-known rules before you invest even a single minute or penny.
Without further adieu, let’s begin.
10 Rules to Invest In the Gaming Industry
I know. “Rules.” That’s not the best way to start this… Or is it?
They aren’t unbreakable. You can take your competent skills and knowledge around investing, take the numbers you’ll learn in a further moment, and have huge success.
See them more like a set of “recommendations” to minimize risk and maximize short and long-term gains.
Fortunately enough, these are not complicated. Anyone with a few years of successful investing on its back knows them very well. It’s just a simple reminder.
- 1) Be fully aware of what the company offers (product or service).
- 2) The product or service must still be valuable in +20 years.
- 3) The company must have a different competitive advantage.
- 4) The company you’ll invest in should be recession-proof.
- 5) The company should be growing earnings consistently (considering a minimum EPS of 8%).
- 6) The company should be growing its dividends (at least 8%).
- 7) The company should have a low payout ratio (75% or less).
- 8) The company should be low on debt (70% or less).
- 9) The company should have a good credit rating (minimum S&P Credit Rating of “BBB+”).
- 10) Preferably, the company’s stocks should be considered undervalued.
More than a rule, it’s my motto: Keep your emotions out of the selection process and add in some discipline and patience.
Do you get what it takes? Sweet.
Now, we may continue.
Gaming Trends of 2020
According to Statista and NewZoo: The Gaming Industry is estimated to be worth $159.3 Billion in 2020, representing a 9.3% increase ($152 Billion) from 2019.
It has an undeniable growth, not only seen on its mainstream media attention and overall participation but as well as financial (being worth a total of $90.07 billion in 2016 – that’s a massive 76.8% difference in four years).
Current forecasts estimate the gaming industry to be at $200 Billion by 2023.
But let’s keep that for later. Let’s see where this growth is located.
Both Latin America and Asia-Pacific show signals of being the biggest zones for growth, expected to keep growing to 10.3% and 9.9% respectively when compared to revenue figures from 2019.
Just to give you an example of how much money does this translates into…Asia-Pacific is now considered to be worth approximately $78 Billion, In 2020.
That means it holds a far majority share (48%) of the gaming industry revenue. With China, as the main contributor, providing a sum of $40.9 Billion in gaming consumer spending.
In comparison, the US is under $36.9 Billion, holding second place and a lower 19% share rate. Japan comes close at third place, then numbers go down for South Korea in 4th, Germany in 5th, and the UK at 6th place.
The following table highlight the rest of the top 10 game markets for 2020. They’re ranked on revenue estimates, in descending order, and are based on consumer research, quarterly company reports, transactional, and census data.
Source: Top 10 Countries/Markets by Game Revenues (Newzoo)
Eastern dominance isn’t something new. They already reached $72.2 Billion in 2019, with heavyweight game companies like Tencent, Activision, and Blizzard investing and profiting heavily from the region.
Regardless of where the biggest sum of money is placed right now; we are all gamers. There are more than 2.7 billion gamers like you, around the world. That’s a quarter (¼) of the global population.
The DFC Intelligence came to report an even higher number in August of 2020, where 3.1 billion people are currently “consuming” video games.
These big numbers come from the outbreak of the COVID-19 lockdown. A survey made in the United States in March of 2020 (considered a starting point) showed that people were playing 45% more time than in previous weeks.
According to Hollywood Reporter: other countries also showed a peak in growth, like France (38%), U.K. (29%), and Germany (20%). Most of it related to multiplayer games, with more respondents playing with others via internet connection.
17% of players in the U.K. responded they prefer to play online, as well as 12% of French gamers agree.
Meaning, it’s not only a great time to meet new people online to play with or against, but also to play a role inside the circle.
Believe it or not, 85% of the total gaming industry revenue produced, comes from free-to-play online games.
And that’s not only for the companies that develop games and manufacture consoles. The staggering increase is also seen in adjacent industries.
Live streaming platform Twitch saw a rising trend of first-time downloads (14% in the US and 41% in Italy) after March.
For one particular reason, “crisis” in Chinese Also means “Danger” as it does “Opportunity.”
The undeniable fact of a worldwide event that left many unemployed, cannot overshadow that there always will be areas with a handful of open opportunities.
For investors (actually, for everyone), Gaming is a very lucrative one.
According to Statista: Gaming is now (by far) the most lucrative entertainment industry, compared to the estimated $20.2 Billion in Music and $42.5B in Box Office earnings.
Numbers like these translate into a big, green sign to move forward… But, to where?
Where exactly could and should you put your hard-earned money in?
Let’s see what are the specific ecosystems where the most money flowed to, in 2020.
Development & Publishment
When you think about video games and their markets, probably the first thing that strikes your mind is, the process of making, launching, and continuously improving games for consoles (Playstation, Xbox, Nintendo) or gaming platforms (Steam or Origin).
So, the time to be part of it is NOW with the next-gen consoles being released.
Newzoo estimates that the console segment will reach $61.1 billion in 2020, boosted by next-gen hardware. On the other hand, researchers assure that PC gaming will slow down by a fraction in the coming years, valued at $39.5 billion in the next two years.
Of course, I’m not suggesting to compete against titanic companies… But instead, to partner with them. There are always blue oceans besides red ones.
This is a clear example of Indie developers/publishers, who “create” and hold their ecosystems for their unique releases.
You can come up with a concept (and follow it through), considering some of the most mundane ideas on paper turn into great games. As with every other business, make contact from free, online communities (Reddit, Forums, and Social Media).
If you can’t or don’t want to play that game, you can follow the supporting route.
Play to the winning team, along with those who know how to play their cards. Or even, that are already making good money.
Computers and Home console units already sell in millions. Doesn’t even matter how much economic havoc came into 2020, pre-orders overpassed stock capabilities.
This has happened before and it will keep doing so. Judge the numbers yourself.
As you can notice, Playstation stays comfortably on top of the podium (with a second-generation that sold more than Xbox 360 and Xbox One altogether).
But that’s history. Although, if history can teach us something, is to learn what worked and what didn’t. Looking ahead, the estimated range of PS5 unit sales goes around 120-170 million.
Considering next-generation platforms could reach this record… These are the different ways you can be part of it, too:
- Funding / Fundraising: Funding of both developers and publishers often work based on achievable “milestones’” which are set according to small or midsize studio expectations. Go on private or public rounds (as Kickstarter and Indiegogo).
- Debt Financing: Competent studios with good but unpopular games can suffer from disabling revenue problems. You could lend some money or even, if agreed by all parties, offer your administration experience to the company.
- Retailing & Wholesaling: The third from this list requires the biggest investment, but it could provide the best reward as well. With the fallout of giants like Gamestop, you could get in, timely, with a new ingredient to the formula It also applies to wholesalers
Do you feel and understand the buzz, but don’t believe there’s much more to be made from the highlighted perspective of consumers?
Well, if you think that the costs of gaming products are higher than any other type of entertainment system, then it’s time to recalculate. Because video games happen to be a big money saver in comparison to other relative devices.
And yet, the almost-entire shift to digital games and cloud gaming platforms will only keep reducing the costs with every passing year, as it increases revenue for investors. We’ll talk about the second group in a brief moment.
In the meantime, it’s worth mentioning that the passionate identity of gamers is among the most important factors of profitability. It’s not the classical teenage boys in their parents’ basement anymore… And funny enough: it never was.
The gaming community is more diverse than it’s thought. Also, female gamers are now a multiplied demographic, surpassing the cohort in age (36-50 and 51-65).
That’s for platforms/devices and the people who use them… But what about the games that are played?
After breaking down video game sales, we find out that those in the Action genre are holding the 1st spot, with 26.9% of market share, only followed by Shooters (20.9%) and RPGs (11.3%).
And taking a look at the best-selling game franchise of all time, we can find Pokemon, ruling the charts with a total figure that goes beyond $90 Billion.
Everyone’s favorite Italian plumber follows in second with $30.25 Billion and Call of Duty with $17 Billion afterward.
2020 also helped to define the way these and other thousands of high-selling titles are being sold: mostly in digital copies, not physical format.
EA said that 52% of its console full game unit sales in the past 12 months were via digital download
For reference, Take Two says its ratio was 55% for FY2020
Sony said that 51% of all games sold on PS4 in FY2020 were digital
In other words. We enter next gen with digital >50%
— Daniel Ahmad (@ZhugeEX) July 30, 2020
And if there’s space for you in the physical realm, then indeed there is it in the digital-only one, as well.
You can invest either in studies that develop and/or publish games only for digital platforms (key-specific). As you get into the scaled reviewing business, now that they have lowered the shyness to distribute copies to journalists and website owners.
But what if you don’t want to invest on any side of the console war, PC master race, or even the game developing/publishing process itself?
What’s the closest you can get?
Downloadable Content (DLCs)
Love it or hate them, DLCs have shown an upwards trend (by 121%) in sales over this last decade, which is further supported by the rising trend of microtransactions.
The Entertainment Software Association has reported a 50% participation from gamers to spend money on in-game goods, in the last year alone.
Of course, as the DLC market share rises, the packaging one falls alongside. According to Capcom’s Annual Report, we would be talking about a downfall from 80% in 2011 to 46% in 2017.
What about the 2020 trends and the specific ways to invest in DLCs?
In a similar fashion that you would invest in video game developing and publishing. But with a special focus on free-to-play games (leveraging cosmetics bonus items – although being careful loot boxes).
The money is on the back-end, so leave the entry-point as open as possible.
And the market you’ll see next (considered the most competitive) is clear proof of how “free” can reasonably be $$$.
Playing on smartphones isn’t a new thing, but revenue from this market is projected to be $95.4 billion by 2022, with over 200 million players in the US alone.
Photo by SCREEN POST on Unsplash
Driven by the surprisingly high number of mobile devices being used right now, the mobile gaming arena (Android and iOS) keeps growing in demand and improving its technology (hardware, software, and infrastructure).
While cross-platform titles such as Mario Kart Tour take the leading flag on this last flap, others like Call of Duty: Mobile and Genshin Impact are the most profitable.
They’re also the most demanding. But most people now carry ultra-specs machines in their pockets, capable of running games that not even a 1yo computer could, at lighting-speed 5G connectivity and unlimited data plans.
Have you noticed how large developing/publishing companies are making a mobile version of their high-ticket games?
Well, this is the reason why…
“Mobile games generate about 50 percent of total global gaming industry revenues.”
And the most popular mobile gaming business model is in-game ads (70.7% on Android games and 80.37% for iOS). Which is not the same as the most profitable, compared to the 21.5% of Android and 11.4% iOS in-app purchases.
This percentage is taken from more than 2.4 billion mobile gamers found globally. Asia is the biggest market (with over $41 billion in revenue) from all.
The number of mobile gamers from the Southeast Asian region will increase to 250 million in 2021. Also, the 5G mobile subscriptions in Asia-pacific are expected to grow to 1.5000 million by 2025.
Considering all of it, your best chance as an independent investor is to partner with other product makers and market/portfolio sharers.
If you have any developing/publishing knowledge and experience, then you might know by now that a mobile game could range from $1k (simple) to $1,000,000 for a high-end app. It takes pre-development, designing, and publishing expenses.
That would be if you want to navigate the sea with your ship, which I’m doubtful if that’s your intention as an investor. Instead, you can take all the non-stopping demand and channel it to your or other’s products and services.
This is what specialized marketing agencies have been doing for a long time, with smaller and multi-million dollar campaigns (as the Raid: Shadows Legends one)
Now, I know what you’re thinking. This is less time-consuming than the whole production process, but it’s still not as passive as you would like it to be.
Companies capable of adapting and shaping gamer’s demands are destined to deliver amazing returns for shareholders. With that in mind, these are the top five gaming stocks.
Photo by Chris Liverani on Unsplash
Now, be fully aware: the GamerOne team and/or its community members aren’t held accountable for “bad” financial choices.
So, if we (plus the materials and information contained herein) exist for educational purposes, then none of it is a solicitation or endorsement to buy or sell from a specific company.
- Capcom (OTC:CCOEF): Consecutive successful releases from many of its key franchises (Resident Evil, Monster Hunters, Street Fighter, Devil May Cry, and Mega Man) is what gets this company growing and reaching sales revenue goals. They pay dividends to shareholders with roughly 30% of annual profits.
- Tencent Holdings (OTC:TCEHY): This Chinese conglomerate is known as the biggest gaming company (by revenue). They own WeChat social network, and full rights to League of Legends, as well as a set of substantial stakes, like Epic Games and Supercell.
- Activision Blizzard (NASDAQ:ATVI): The company works as a developer, publisher, and distributor of games (World of Warcraft, Call of Duty, Overwatch, and Candy Crush Saga) across many categories It reported a 52.4% YOY increase in net revenue for Q3 2020, as net income tripled.
- Electronic Arts (NASDAQ:EA): The U.S. second-largest gaming company (by revenue) has the leading position in the sports genre (with FIFA and Madden NFL) as well as massively profitable AAA titles as Apex Legends, Battlefield, and The Sims. Its virtual items expansion and digital software distribution skyrocketed sales.
- Zynga Inc (NASDAQ:ZNGA): A heavyweight champion of the early social gaming era. Its organic pipeline of games might produce a double-digit growth over the next five years. Zynga also grew the MAU count to 83 million in Q3.
These were chosen among hundred others, due to their leading participation in 2020, so it’s always worth it for growth-seeking investors to see what’s working now…
Because sometimes it shows what it will work later on.
Gaming Forecast for 2021 and Beyond
2020 is FINALLY over, so the forecast that truly matters is the one for 2021 and beyond. So here’s my favorite part.
We’ll tackle the five main sectors that aim to grow the most, but that isn’t saturated yet.
Let’s start with…
You were probably expecting this one.
So far, the traditional gaming value chain has merged with streaming and esports, attracting new types of audiences and customers to the participant ecosystem.
Gamers are no longer the only consumers. Spectators are here as well. For the most part, this is the reason behind the unbeatable global market demand scenario we’re witnessing.
So far (in 2020), it has accumulated a global audience of 495 million people, and It shows no signs of stopping anytime soon…
According to Deloitte and The Esports Observer, esports global fan base reached the sum of 380 million in 2018, where 37% were males (between 21-35) and 16% females (in this range). And in the US alone, 61% of esports viewers earn over $50k per year.
Let’s not forget, this group has changed its attention away from traditional sports media. To give you an example of this: the League of Legends championship got more views than the Super Bowl, NBA, NHL, and MLB championship.s
The segmented fan base is growing significantly (15% YoY) but monetization lags 10–15x (on a per viewer basis).
Newzoo and Goldman Sachs (gaming market research firm) expect global ad revenues to reach $1.8 billion by 2021.
Although the global pandemic slowed down live events, which are the biggest revenue driver of the industry. Such conditions left the global esports market revenue at $1.06 billion, instead of the predicted $1.1 billion.
The audience magnitude we’re talking about reminds advertising companies of a few other golden and fresh-open avenues for monetization.
That’s why the first investing opportunity from this list is:
Sponsorship and Merchandising
The esports value chain has expanded enough to unlock layers for brand exposure.
Think of Global CPG leaders: Louis Vuitton, Estee Lauder, Puma, Adidas, Budweiser, and Volvo which are investing in product placement, themed products, and “advergames.”
Major organizations, such as Cloud9, Team Liquid, and OG are generating big cash from these models… And you can do it as well.
This path is for you if you want to be in the commercial backend. But if you want to be part of the frontend…
Esports Team Talent
Big, competitive teams as the ones just mentioned having a roster for individual games, which are often picked by popularity. The most successful organizations manage 5 to 12 of these smaller groups.
This diversification helps them create more sponsorship value and also protects them to lose the intrinsic value of low-performance matches or reduced developer’s support.
But be careful. Wider casting nets can rapidly scale costs for your organization, where you often need to pay salaries to players, coaches, and other support staff.
Source: Team organization investments over time, 2016-2018 (Deloitte)
You’ll have to move your pieces smartly because team turnover outside of the most popular game titles tends to happen so quickly, that net loss is a latent possibility.
Also, consider the viewership and following of such pro-athletes and the potential market for sale, before you get in. As well as if this is the model look yourself into. If not…
Platforms & Event Organization
The supporting internet for teams and tournaments makes this model one of the most attractive. I’m talking about hosting esports competitions and managing all the event-related processes… This can be either offline or online.
Just think about it: Dota 2 “The International 10” tournament (postponed to August 2021) was being thought to reward a $40 million reward pool.
Its 9th version top-prize was given to OG for a still whopping amount ($3.1 million to a five-person squad, from a total of $34.3 million).
No other Esports prize pool compares to this one, but they’re starting to get close. In 2019 alone, ten of the biggest esports tournaments offer a combined prize pool of $177 million. It won’t be rare to see that sum multiplied anytime soon.
Depending on the 2021 situation, it’s very likely that tournament brands (Major League Gaming circuit, Intel Extreme Masters, and others) backed by tech giants will come back.
If you want to be in, before they’re back, take into account the numbers behind gamers/viewers/game titles networks, including the prize pool perspective and matching liquidity.
Last, but not least: where the money IS.
If you’re acquainted with this sector, then you know how much money there is inside.
Even more, when you consider that most of its insider activity comes from smaller startups that are getting skyrocketing market growth.
Have you ever tried traditional sports betting (football, basketball, or racing)?
Then I guarantee that you shouldn’t have problems in making your first transaction betting on esports. Meaning, wagering on odds that a bookmaker sets.
The Esports Betting market is formed by:
- a) Match Winner bets
b) Outright bets
c) System bets
d) Esports-specific bets.
And it’s “ruled” by important betting sites such as Unikrn, GGBET, Challengermode, Midnite, GameScoreKeeper, PVP.me, and Winners.bet.
While the loot box (collectible/tradable in-game items) market is powered by probabilities, this is not something I endorse, due to grey legal areas on the subject.
Speaking of money…
Blockchain & Digital Assets
If players already invest a lot of time into their games and money for their characters, then what would happen if they had the opportunity to trade or sell these goods, differently?
That’s the million-dollar question with Blockchain.
Photo by Hitesh Choudhary on Unsplash
The gaming industry is another that is starting to pick up benefits from this economic advancement. Many financial experts point out that all digital assets (in-game goods and marketplaces) will be powered by blockchain very soon.
Its adoption is led by giants like Ubisoft (Blockchain Entrepreneur Lab) and Atari (Atari token) but smaller startups (SoRare, Planetarium) want to give developers, publishers, and IP owners early access to the new business model.
This can be seen on the list of released blockchain games after new coins were also launched. Sadly, in most cases, none of these accomplished many substantial results.
Giving them $500 million and months invested in direct funding to these projects, it is hardly numbered those who managed to sustain +10,000/daily active users. But things are changing.
Ecosystems with in-game economies worth hundreds of millions of dollars are being put into place. And you, as an early-stage investor, must focus your eyesight on this vital fact.
More than a cash-fast business, see it as an economic simulator, that will be the home of players who spend tens of thousands of dollars on free-to-play games and crypto whales, sooner or later.
Such heavy spenders make this sector more of an inverted pyramid…Where financial value is the main attraction, rather than traditional game mechanics.
Being said, it’s still important for companies to add an exciting and fun experience for gamers if what we want is acceleration. This complex mix is both a challenge, as it is an opportunity.
The good news is that almost anyone knows what’s the full potential behind gaming blockchain. But we’re getting closer to finding out.
But not closer than this: one of the most anticipated technological disruptions of our era.
Cloud gaming revolves around the chance of not having to play games through expensive, dedicated hardware (be it PC, console, or mobile).
Remember when I mentioned the big shift from physical goods (CDs) to digital, virtual downloads? Well, this cloud-based is a bigger transition, planning to disintermediate the distribution platform from the access point layers of the value chain.
What this solution does, is to render all graphics and compress resulting streams/videos to clients in remote (“cloud”) CPUs/GPUs.
In such cases, the users access a tiny set of recent frames and not future frames before its production. Videos are streamed and decoded locally to the user.
As you can imagine, this approach demands more bandwidth and a longer processing time, which is partly solved by the commercialization of 5G
Being said, the cloud gaming market was valued in 2019 at an estimated $306 million. Is projected to reach $3 billion by 2024, at a CAGR of 59.0%.
Source: Cloud Gaming Market (MarketsandMarkets)
Another driving factor for Cloud Gaming market growth is the expected increase of internet users during the forecast period.
This new sector is also seen as a serious competitor for the traditional game market.
The Most Valuable Players in the cloud gaming realm are:
- United States: NVIDIA (GeForce Now), Amazon (Luna), Google (Stadia), and Microsoft (XCloud).
- China: Tencent (GameMatrix) and Alibaba.
- Japan: Sony (Playstation Now).
This has also prompted titan corporations (such as Sega, Warner Bros, and Disney Interactive studio) to partner with several pioneering companies(G-Cluster, Onlive, StreamMyGame, T5-Labs, and Gaikai) to distribute their games.
Even the US retailer Walmart is planning to launch its cloud gaming service
All of these vary in some way or another. They run games similarly (with GPU accelerated computing platforms, integrating processors, software, and programmable algorithms) but aren’t distributed or monetized in the same way.
For example, Sony’s Playstation Now offers a library of 800 licensed games, while Google Stadia runs a marketplace of games, and the current leader, Nvidia GeForce Now facilitates you to hook into free-to-play or already owned games.
All of these companies emphasize Virtual Reality (VR) with their products.
Virtual Reality (VR)
The extended functionality of virtual reality represents a new access point (with its distribution platforms) with a global market size value of $11.56 Billion (in 2019).
This is expected to grow at a Compounded Annual Growth rate of 30.2% from 2020 to 2027.
Photo by Sophia Sideri on Unsplash
We could rightfully say the Nintendo 3DS and PokemonGo were historical successes. But new dedicated VR game developers, hardware, and software engines being developed will hardly compare to it.
Jumping into another category, these will offer a truly interactive experience.
We’re talking about upgraded accessories (headsets, gloves, bodysuits), fine-tuned graphics, and top-rated game design that’s been lacking so far. Users with spending capacity have been demanding this fun source… So it’s time to give it to them.
These are the biggest companies operating in the Virtual Reality gaming market:
- Facebook Technologies, LLC. (Oculus Rift)
- Google VR
- HTC Corporation (VIVE™)
- SAMSUNG ELECTRONICS CO., LTD. (Gear VR)
- Sony Interactive Entertainment LLC (Playstation VR)
- bHaptics, Inc.
These companies have been riding the VR wave for a long time. So they have converted into industry leaders by investing heavily, taking competition out of the arena. So keep an eye on them, while this kind of tech becomes mainstream.
Being said, you need to know that the only way to invest in them (equals, investing in VR) is to put money on the mother companies that own the licenses.
And for the moment, that’s not the best idea. At least not until big-name studios such as EA and Activision Blizzard get into the wave as well (designing VR content).
For now, you are only left with smaller, non-public companies that don’t generate needle-moving earnings. Being patient and informed about it it’s your best bet.
Too Long; Don’t Read (TL;DR)
Gaming no longer refers to hardware, software, publishing, or development. Instead, it’s a mix of all the most profitable entertainment formats and business models.
Its value chain has expanded so much, that all that is left is a blurred line of wealth.
So my best advice is to choose the business model that you like the most and spend time following or building solid gaming communities, to spend some money later on.
Big-name corporations have deployed the necessary discovery and development tools to expand further on the un-built opportunities: be it PC, Consoles, or Mobile publishing, Stocks, Esports, Betting, Blockchain, Cloud Gaming, or VR.
Inside the new, fast-evolving era of gaming, it’s not knowing what harms you the most.
So today’s read is the best guideline you can find on the complex investment marketplace
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Securities Disclosure: The author holds no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Gamer One does not guarantee the full accuracy of the report
Opinions expressed in the report don’t reflect the overall thoughts of our community members or founders, as it doesn’t constitute investment advice.
You and all readers must perform due diligence.