There’s no denying eSports has become a phenomenon.
The once ignored and occasionally mocked hobby is now occupying media and venues typically designated for major sports leagues.
And this past weekend saw what we may look back on as a turning point for the industry as it marked the first time an eSports video game competition was broadcast live in a major network’s prime time slot.
The professional eSports franchise Overwatch League’s championship playoffs were aired Friday and Saturday on Disney-owned (NYSE: DIS) ESPN from the Barclays Center in Brooklyn, where all 20,000 seats were sold out.
Competitive gaming has become a $1.5 billion industry where top players can earn $2 million per year, according to the Wall Street Journal. It has grown to the point that the International Olympic Committee is even considering adding eSports to its roster. And it’s likely to keep growing.
In fact, Baird analyst Colin Sebastian believes the eSports segment will become the largest segment in the media and entertainment sector, spiking to $145 billion in annual sales by 2020.
That kind of growth—and the growth we’ve seen from the industry already—makes for a compelling investment case.
These are the stocks to watch in the sector.
Activision Blizzard (NASDAQ: ATVI)
Activision Blizzard (NASDAQ: ATVI) owns the Overwatch League, the league whose championships were recently held at a sold-out Barclays Center and aired on ESPN.
Activision inked a deal with Disney last month to broadcast the Overwatch League championships on ESPN and ABC networks, and the two-day event averaged over 861,000 prime time viewers.
The deal is Activision’s biggest to date and reportedly includes the broadcast of the second season championships of the Overwatch League which will include hundreds of hours of live coverage and highlights. It also marks a continuation of ESPN’s push into the fast-growing billion dollar eSports industry.
“This overall collaboration with Disney/ABC, ESPN, and Blizzard represents our continued commitment to eSports, and we look forward to providing marquee Overwatch League coverage across our television platforms for fans,” ESPN executive Justin Connolly said in a statement about the deal.
The Overwatch League is likely to become Activision’s next billion dollar franchise. For its first season, it sold a total of 12 teams for a reported $20 million each, totaling $240 million for the League’s first season. For the second season, Activision plans to expand the League to 28 teams.
Activision is also known for its Call of Duty, World of Warcraft, and Candy Crush franchises. And in total, the company boasts 8 video game franchises that have generated more than $1 billion in sales each.
Take-Two Interactive Software Inc. (NASDAQ: TTWO)
Take-Two (NASDAQ: TTWO) is best known for its Grand Theft Auto, Red Dead Redemption, and NBA 2K franchises.
The stock is up 300% over the last three years from growth in digital in-game spending, and is up 40% for the year.
Take-Two isn’t raking in a ton of cash from eSports at the moment, but it has a new partnership with the NBA to launch the NBA 2K eSports league which could see huge returns.
The founder and chief investment officer of Margate Capital Management, Samantha Greenberg, is bullish on Take-Two saying, “Engagement with video games continues to grow. … While we’re bullish on the entire sector, we believe Take-Two has the biggest upside.”
Greenberg set a price target for TTWO at $176, or 57% higher than Wednesday’s closing price.
Electronic Arts (NASDAQ: EA)
Electronic Arts (NASDAQ: EA) boasts some big franchises with its Mass Effect, Battlefield, Anthem, Madden NFL, NHL 19, and NBA Live 19 titles.
But it’s its partnership with FIFA, the international soccer governing body, that’s turning heads.
Late last year, EA announced a new partnership with the Federation Internationale de Football Association (FIFA) to launch an eSports tournament series for EA’s ever-popular FIFA video game franchise.
The hope with this new eSports tournament was to attract new players and increase player engagement for EA’s FIFA franchise on the back of this year’s World Cup playoffs in Russia.
The announcement pushed EA further into the eSports arena, where it also has a similar agreement with the NFL for its Madden Championship Series.
EA doesn’t get much credit for its activities in the eSports industry making it the sleeper stock in the sector.
Its stock price is down nearly 10% for the month, but the average analyst price target for the stock is $149.15, or 17% higher than today’s closing price.
Tencent (OTC: TCEHY)
Tencent (OTC: TCEHY) is unique on this list.
The Chinese tech giant has seen massive growth from China’s insatiable thirst for online entertainment in recent years. The company’s products include social networks, gaming, streaming services, and cloud services, and is also one of China’s largest mobile payment providers.
The company is effectively the Chinese equivalent of Netflix, Google-parent Alphabet (NASDAQ: GOOG, GOOGL), Facebook (NASDAQ: FB), Spotify (NYSE: SPOT), PayPal (NASDAQ: PYPL), and Activision Blizzard all wrapped up into one.
But like Activision Blizzard, Tencent has become one of the most aggressive promoters of professional gaming and eSports.
The company has invested heavily in both Epic Games Inc., the maker of the massively popular Fortnite franchise, and Riot Games, the maker of League of Legends.
Fortnite is the highest monetized video game in the world, generating an annual run rate of $3.6 billion on in-game micro transactions, which is more than the annual revenues of any other major console or PC game on the market today.
The free game is the most widely watched game on Amazon’s (NASDAQ: AMZN) Twitch video game streaming platform, attracting more than 10 million viewers.
“It’s very viewable,” Michael Hickey, analyst at Benchmark Co., said of Fortnite. “The streamers have been all over this and are having a lot of success. Streamability equals marketability, and you don’t have to be a player to enjoy it.”