You might be shocked to hear it, but more than 250 million people worldwide are watching eSports, and viewership is expected to surpass that of traditional sports viewership within the next couple of years.
For proof of the ever-growing popularity of the industry, one need look no further than ESPN which aired the championship playoffs for the professional eSports franchise Overwatch League and featured gamer Tyler “Ninja” Blevins on the cover of ESPN magazine last year. ESports has even been added as a medal event at the 2022 Asian Games, and industry backers are seeking a future in the Olympics.
With ESPN on-board with eSports and the industry gaining steam worldwide, it’s no wonder why Dutch research company Newzoo says the industry will be worth $1.6 billion by 2021 and Goldman Sachs recently estimated that the global audience for the industry will climb to 385 million viewers per month by 2022, surpassing even the audience of the NFL.
With such promising growth, profits for companies with a stake in eSports are expected to rise and investors may want to consider getting in on the industry.
Of the video-game makers, Grand Theft Auto and Red Dead Redemption 2 publisher Take-Two Interactive (NASDAQ: TTWO) has had the worst start to 2019 and is currently down nearly -10% year-to-date.
Stifel analyst Drew Crum is positive on the stock and said of Red Dead Redemption, which was the best-selling game of 2018, “The early success of the game may create for a difficult net bookings comparison… But at current levels, we view reward/risk as better to the upside” for the stock.
Seventeen analysts rate TTWO a Buy and their average price target for the stock is $133.50, suggesting possible upside of 41% over the next twelve months.
Activision Blizzard (NASDAQ: ATVI) is the largest games company by revenue in the U.S., but shares are down nearly -50% in the last six months. And according to Piper Jaffray analyst Michael Olson, investors should be “kicking the tires” on this stock given its improving setup in 2019 and into 2020.
Activision was an early leader in the eSports space with its Overwatch League, and Olson says that there are five reasons to consider Activision, including rising near-term talk on streaming, potential E3 announcements, anticipation around improving fundamentals in 2020, management’s re-allocation of resources towards key franchises, and valuation. While there aren’t yet any new game catalysts for the stock in 2019, Olson says patient investors interested in the space should consider “chipping away at a position” in Activision at current levels.
There are nineteen Buy ratings for ATVI and analysts average price target for the stock is $62.15, suggesting possible upside of 30% over the next twelve months.
And then there’s Tencent (OTC: TCEHY). The Chinese multimedia conglomerate is the world’s largest video game company by revenue. The company’s League of Legends has been going strong since 2009 and is one of the top draws in the eSports industry, helping to drum up interest in competitive gaming as a spectator sport.
Tencent also publishes the mobile versions of PlayerUnknown’s Battlegrounds and owns a 40% stake in Epic, the maker of the blockbuster game Fortnite.
A slowdown in China sent shares tanking last year, but analysts say the stock is due to surge. Their average price target for the stock is $227, suggesting possible upside of 362% over the next twelve months.
If you want to get in on the eSports trend without buying a game maker, Turtle Beach (NASDAQ: HEAR) might be your best bet.The San Diego-based audio-tech stock has been making waves in the gaming world with its top-of-the-line headsets that can be used on a range of platforms, from Xbox to a tablet.
Turtle Beach had a stellar fourth quarter, but shares have been under pressure over the last few months with the stock down nearly -25% so far this year. However, at just under $11, the stock looks compelling.
“We believe the popularity of Battle Royale video games remains a tailwind for Turtle Beach due to their inherent requirement for team-based communication,” said Oppenheimer analyst Andrew Uerkwitz.
Uerkwitz believes there are multiple long-term headwinds for Turtle Beach, including expansion of online multiplayer games, video game streaming, and eSports. And with the recent surge in sales, the company will be able to improve its balance sheet and invest in new products and markets.
The Oppenheimer analyst rates the stock a Buy and set a price target for the stock at $24 – 123% higher than the current price.