How the coronavirus is impacting the gaming and esports sector…

As we all know coronavirus (aka COVID-19) is currently causing havoc with the stock markets. In the real economy some sectors are losing while others are winning. For example, tourism is being smashed while health care is in huge demand. Today I give an update on the gaming and esports sector to see how it is being impacted in the real economy.


Gaming in China is booming as a result of the coronavirus enforced lockdowns and more time spent at home. Anecdotal reports suggest gaming in China has increased in early 2020 as consumers were stuck at home.

SensorTower reported:

“The top mobile game by worldwide revenue for January 2020 was PUBG Mobile from Tencent with more than $176.3 million in user spending, which was nearly four times more than the title generated in January 2019. Approximately 52.8 percent of PUBG Mobile’s revenue was from China……Honor of Kings from Tencent was the second highest earning mobile game by worldwide revenue for January 2020 with more than $151.3 million in gross revenue, which represented 25 percent year-over-year growth from January 2019.”

The Gaming Recap reports (no link):

“Year over year in January, aggregate online game time spent for Tencent’s most popular games would increase 28%, monetization of these games was seen to be up 50-60% from normal seasonality, with nation-wide online games seeing cash grossing increasing 30-50%. In February, China would see a 62% jump in mobile game downloads.

Bloomberg reports:

“Virus quarantines in China spur Tencent, NetEase gaming surge. Mobile gaming DAUs grew 48% since December, topping year prior. For Mahjong and Game For Peace (PUBG), two of Tencent’s most popular titles, daily active users increased 109% and 44%, respectively, in the two months through February.”

Daily Average Users for popular games in China


Back in January in the InvestorIntel article “The Wuhan Coronavirus crisis leads to some investment opportunities“, I wrote:

“As consumers choose the safety of home, online shopping and entertainment sites should be winners……online shopping companies Alibaba (NASDAQ: BABA) and (NASDAQ: JD), food delivery giant Meituan, and gaming and social media giant Tencent (OTC: TCEHY).”

Online gaming has been a big winner simply because it is a popular form of entertainment and in many cases provides some online social interaction. Both of these will continue in future years, and in the short term with coronavirus leading to increasing global lockdowns the thematic will only get stronger. There will be a shift towards more global consumers matching the coronavirus global pandemic shift, where previously it was mostly a China problem. This will lead to increased revenues for gaming companies that service the global marketplace. Tencent will still be a leader, but other gaming related stocks will also do well.

Some other global gaming companies include Sony Corp. (NYSE: SNE), Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA), NCsoft Corporation (OTC: NCSCF), Nexon Co Ltd (OTC: NEXOF), NetEase, Inc. (NASDAQ: NTES), Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), Ltd. (NASDAQ: CYOU), and SciPlay Corp. (NASDAQ: SCPL).

The current most popular gaming model has been free to air games with players spending money on in-game purchases. While this will continue, a new model of cloud gaming will allow a whole new breed of online players to play the latest and greatest online games, from practically any device, for a small monthly subscription. This new trend is known as ‘cloud gaming’ (or Gaming as a Service (GaaS)) as it involves internet streaming to deliver games on your device of choice. Key companies in the market are Google Stadia, Microsoft xCloud, Sony Playstation Now, Apple Arcade, Shadow, Vortex, Parsec, and Nvidia’s GeForce Now.


Esports has been impacted by the coronavirus as stadium tournament events with large crowds are being canceled, due to new rules limiting crowd gatherings (usually to <500, and sometimes to <100).  This then impacts the number of events that can be held, or if they are held with no crowd it can reduce the excitement. The flip side is that as conventional sporting events are canceled due to coronavirus then this may attract new viewers to esports.

Closing thoughts

For the next few months, the gaming sector is looking a stronger bet than the esports sector. The good news for investors is that the market-wide sell-off in equities has been almost across the board in every sector. This means gaming companies with booming revenues are now more attractively valued and should be on investor’s radars. The esports sector may not get the same revenue boom but again stocks have been sold down indiscriminately leaving plenty of bargains.

What we need to remember is that in bad times people want to have fun and tune out from all the stress and worry of coronavirus. And that is exactly what the gaming and esports sector offers, and why it will continue to have success in 2020.

Gaming is booming in China as the coronavirus means more time at home

With the coronavirus still raging on in China and 70,548 confirmed cases, and 1,770 deaths it is no wonder that much of China remains in lockdown. As a result, online gaming activity is setting record highs in China as more people spend more time at home.

The implication for investors is that Chinese gaming-related companies should be in for a booming quarter when they next report results. While some of this is already priced into gaming stocks, should the coronavirus last longer more gains can be expected.

Tencent rallies 10% in the past month as more Chinese stay at home gaming

Last month when I wrote: “The Wuhan Coronavirus crisis leads to some investment opportunities” I mentioned that Chinese internet stocks can be possible winners including gaming and social media giant Tencent (OTC: TCEHY). The stock has rallied 10% since then. The longer the coronavirus has a significant impact then I expect the Tencent rally to continue.

Game live streaming hours watched up 17% in January

VentureBeat just reported that game live streaming was up 17% to nearly 500 million view hours in January 2020. The most popular streaming sites were Amazon’s Twitch (NASDAQ: AMZN), Alphabet Google’s (NASDAQ: GOOGL) (NASDAQ: GOOG) YouTube Gaming, Facebook Gaming (NASDAQ: FB), and Microsoft (NASDAQ: MSFT) Mixer.

In China, Tencent backed Douyu and Huya will benefit from increased live streaming. Ironically Douyu’s headquarters is located in Wuhan, the center of the coronavirus epidemic.

A game called ‘Plague Inc.’ has become highly popular and is like the real-life coronavirus threat

Ironically one of the most popular games in China nowadays is titled “Plague Inc’. It involves trying to spread a deadly disease globally. The game maker Ndemic Creations said their ‘website had gone offline due to high levels of gameplay’. ‘Plague Inc.’ was China’s most downloaded App last month.

Plague Inc. – Can you infect the World?


Cloud gaming is just starting now

Cloud gaming involves internet streaming to deliver games on your device of choice. It allows you to play against competitors globally. Key companies in the market are Google Stadia, Microsoft xCloud, Sony Playstation Now, Apple Arcade, Shadow, Vortex, Parsec, and Nvidia’s GeForce Now.

The concept is that for those who want the best games without paying for expensive hardware, then they can login via an internet service to a cloud games provider for a subscription fee. There is also an acronym ‘Gaming as a Service’ (GaaS). A key here is many people cannot afford a quality gaming device but want to access top-quality online gaming via their smartphone.

In recent news, Activision Blizzard removed all its games from NVIDIA’s GeForce Now cloud gaming service earlier this week. The report said that “the games are likely to return subject to a commercial agreement between the two parties”.

Cloud gaming is forecast to take-off


Closing remarks

The gaming world never stands still. The coronavirus may be causing a spike in Chinese gaming, but globally gaming is taking off in many ways. ESports revenues are growing at 25%+ pa with revenues now exceeding US$1b. Smartphone gaming with games such as the super popular ‘Mobile Legends’ is growing massively, especially in Asia where many consumers only own a smartphone. This brings me to the next big thing in gaming, cloud gaming or Gaming as a Service. If it can gain enough scale and competition then subscription prices will fall, and the worlds 3.2 billion plus people who own a smartphone can be possible future subscribers. That number is expected to approach 4 billion by end 2021.

Coronavirus lockdown leads to more gaming and esports

The esports and gaming sector may prove to be a surprise winner as ~45 million plus Chinese are in lockdown to prevent the spread of the coronavirus. The Chinese are huge gamers and love their esports. In terms of users, China is the world’s largest game streaming market, with approximately 4.9 times the monthly active users of the U.S. market in 2018.

Being confined to your home means spending more time and money online, which may prove a boost to the Chinese esports and gaming sector in H1 2020.

China coronavirus lockdown may boost Chinese gaming and esports

Some key stocks and ETFs to benefit from increased gaming and esports in China include:

  • Tencent (OTC: TCEHY) – The China leader in esports game streaming, and the online gaming sector. Tencent acquired Riot Games and now owns the very popular League of Legends game. Tencent owns the number 2 ranked game streaming platform in China named DouYu. DouYu primarily focuses on the live-streaming of games, and had 159.2 MAUs in Q1 2019. Tencent also makes various pc and mobile games.
  • Huya (NYSE: HUYA) – Huya is known as the “Twitch of China”, and is the number 1 ranked game streaming platform in China.
  • NERD and ESPO – For those preferring an esports ETF, then NERD and ESPO are two of the best to consider. They do have broader global esports and gaming exposure with NERD being more aligned to esports.

Enthusiast Gaming continues to fly under the esports radar

A report this week titled: “How a prominent B.C. family business created the biggest e-sports gaming network in North America”, looked at the history of Enthusiast Gaming and the Aquilinis family. Essentially the story describes the Aquilinis family involvement in building a giant esports pure-play company. What is amazing is how fast they have progressed and yet they still fly under most investor’s radar.

Enthusiast Gaming Holdings Inc. (TSXV: EGLX | OTCQB: EGHIF) is one of the fastest-growing esports companies globally, and one of only a few publicly traded, pure-play esports and gaming companies. Enthusiast Gaming has the largest gaming network in North America and the English speaking gaming regions. The long term vision for the Company is to build the largest, vertically integrated esports and gaming company in the world. The Company reaches more gamers than Twitch, IGN, Gamespot in the USA; and reaches over 200 million gamers on a monthly basis, with 1 billion page views.

Atari is opening its own gaming hotels in eight US cities

Atari is best known for its games which began back in the 70’s. But now the Company is responding to the esports phenomenon. Atari plans to open their own chain of branded hotels that will feature spaces for virtual reality and augmented reality, studios for streaming games, and venues for throwing esports events. What a brilliant idea.

Atari hotels focused on gaming and esports streaming and events planned to open in about 2 years


Torque Esports signs a deal with Microsoft Xbox Game Studios

Torque Esports (TSXV: GAME | OTCQB: MLLLF), via its subsidiary UMG Media, has signed a deal with Microsoft’s (NASDAQ: MSFT) Xbox Game Studios to operate and broadcast the Gears 5 Esports Challenger Series Finals. UMG Media is a leading platform for online tournament play and esports entertainment events.

Top esports games 2020

Games Radar took a look at the top esports games in 2020 and the top performers were (in no particular order):

  • Counter-Strike: Global Offensive
  • League of Legends
  • Fortnite
  • Dota 2
  • Call of Duty
  • Overwatch

I would add in Mobile Legends to the list.

Mobile Legends Vs League of Legends – What’s your favorite game?


Wrap Up

As investors look for ways to still make money if the coronavirus remains a concern in H1 2020 the gaming and esports sector is definitely one to consider.

The Atari gaming and esports hotel concept looks to be a big winner and I look forward to visiting an Atari hotel one day.

Esports doesn’t have to be high risk

Last week I was chatting with a new investor who came into our company and I asked him, “What was the main reason you deciding to invest?” He told me that last year, the stocks that I suggested outperformed the ones he picked himself and therefore felt comfortable coming into our company. While I was flattered, I humbly mentioned to him that the S&P 500 was up 29% in 2019 so everyone should have had a great year. #Perspective.

It’s for this reason that I hate making stock recommendations because I have no idea where the broader market is going to go. Black Swan events which have been sparse in the past decade seem far more plausible with Coronavirus, trade wars and political instability. Not to mention the fear of mockery if my picks turn out to be duds.

Generally speaking, in uncertain times, investors tend to avoid small caps, and perceived higher risk sectors, such as crypto, cannabis, esports, etc. (not that I agree). But there must be a way to have your cake and eat it too. It got me thinking, what would be a ‘low’ risk stock pick that would still give investors exposure to the esports and gaming sector.

My Methodology

Criteria # 1:  Esports, video game and media exposure

It’s hard to just pick a pure-play esports company given that the video gaming market is ~$150 billion compared to ~$1.2 billion for esports. It’s important that a company has both exposure to esports, which will drive higher growth, but still has gaming and media diversification.

Criteria # 2:  Global reach

2020 is the year where esports brands will go truly global. Between Activision, Riot and Valve game titles, the competitive scene and fan base transcend borders and thus the big winners will be those that monetize this trend.

Criteria # 3:  Monetize multiple verticals.

The esports industry is not a monolith and its parts are all very different and sometimes completely unrelated. You have venues, content, media, teams, franchises, technology, betting and game publishers who are all vying for a piece of the pie.

Criteria # 4: Liquidity + Market cap

To pick a more ‘defensive’ esports play, we need to see a min. $500 million market cap and a company that has been trading for at least 1 year.

Criteria # 5:  Mobile gaming

In my opinion, this will be the biggest part of the industry over the next 1-2 years and can’t be understated. Mobile gaming is here to stay and will surpass traditional PC and console gaming in that timespan.

After going through about 20 companies and rating them on the 4 criteria, there was a clear winner, but not the one I wanted. So, I went back to the drawing board and added another 10 companies, hoping I could find something better and more creative to write about. But it was not meant to be. There is one company that truly meets these criteria and that company is none other than Tencent (OTC: TCEHY).

With a market cap of nearly $500 billion, this is as large of a cap as it gets in the gaming world.

Who is Tencent?

In short, they own almost everything. Many of their best gaming titles are very unknown in North America, but one title that should be on everyone’s radar is Honor of Kings. The game falls into the multiplayer online battle arena genre, known as MOBA, and has the accolades of the highest-grossing and most downloaded app of all time. Outside of China, the game is known as Arena of Valor. They have continued to build on their mobile strategy having launched PUBG Mobile and Call of Duty Mobile which are two of the top games in the Battle Royale genre.

While there are a lot of top game publishers in the market, at the end of the day, Tencent has a piece of almost all of them including:

  • RIOT Games; League of Legends,– 100%
  • Ubisoft; Rainbow Six Siege – 5%
  • Supercell; Clash of Clans – 84%
  • Epic Games; Fortnite – 40%
  • Activision; Overwatch, Call of Duty – 5%

The list goes on and on, and that’s just games. I’ll touch on social media, and media platforms as well. All you need to know is Tencent is the largest game publisher in the world…by a long shot.

Overall Financial Performance 

They had a blowout Q3 with revenues of USD$13,748 million and profits attributable to shareholders of USD$3,451 million, representing a 21% and 24% YoY increase respectively. Not only was there a 27% YoY increase in operating profit, an operating margin of 29% also showed a 1% increase from the previous year. There are some concerns under the IFRS basis as the operating profit was down 7% and the margin showed a significant decrease of 7% as well. However, this is largely due to the net gains from investee companies as Q3 2018 had a large gain from these other businesses, and do not necessarily reflect the core earning potential of Tencent. The adjusted EBITDA of USD$5,495.84 million (an adjustment of USD$395.72 million were made for equity-settled share-based compensation) also shows a 29% YoY increase, reflecting Tencent’s great performance over the year. Furthermore, the cash flow from operations has also seen a 34% YoY increase even though capital expenditures were 11% from the previous year. This indicates a 36% YoY increase in FCF, which is a positive given relatively stable short and long-term debt. 

Online Games 

Online Games produces the largest amounts of revenue for Tencent. In Q3 2019, online games saw revenues of USD$4.12 billion, a YoY increase of 11%. This growth was driven by smartphone gaming (not including games attributable to Tencent’s social media applications) as it represented almost 60% of total gaming revenues for the company. With popular mobile gaming titles such as PUBG mobile, Call of Duty Mobile, Honour of Kings and Peacekeeper Elite to lead the charge, Tencent witnessed a 9% YoY growth in mobile gaming revenue in Q3 2019. On the PC side of things, the revenue is down by 7 % YoY and represents only USD$1.66 billion (40%) of the total. The reason for this is most likely the cannibalization of PC gaming by mobile and reduced revenue of popular titles such as Dungeon Fighter Online. Not all is lost in the PC domain, however, as other large titles such as League of Legends and TFT, another Riot Games IP, continues to bring increasing amounts of revenue for Tencent. 

Communication and Social Media 

During the Q3 the MAU (monthly active users) of QQ, Tencent’s IM service and web portal for social media, games, blogs, shopping, etc. saw a YoY decrease of 8.9% and 6.4% for desktop devices and smart devices respectively. Tencent claims this is largely due to enhanced security protocols that actively delete spam and bot accounts. WeChat on the other hand, perhaps of the biggest stand-alone applications in the world, has a total of 1.151 billion MAUs, an increase of 6.3% from Q3, 2018. This may be largely in part due to the implementation of the “Growth Program” which trains Mini Program owners to run their business through WeChat and is backed by a fully blown analytical tool to allow these owners to gain valuable insights. This explains why DAU (daily active users) for Mini programs has increased past 300 million and why commercial transactions have doubled YoY. Their fee-based subscriptions for digital content, which totals 170.6 million also saw a YoY increase of 10.7%. This includes the growth of Tencent video and music subscriptions by 22% and 42% YoY, respectively. Recently, Tencent has announced a 10% stake in UMG effectively increasing its capabilities. Tencent even highlighted the integration and improvement of these services as one a focus in their strategic highlights. Overall this synergy of the sector has allowed it to grow alongside many of Tencent’s other verticals and has allowed it to achieve revenues of USD$3.175 billion by Q3 2019, a YoY growth of 21%.

FinTech and Business Services 

The FinTech and business services sector had revenues of USD$3.857 billion by Q3 2019, a 36% YoY growth. This immense growth was possible due to an infrastructure that takes advantage of all the different monetization verticals coupled with the improvement of their cloud services. Within Fintech, the growth of WeChat’s Mini Programs in terms of the numbers of transactions and the DAU, helped flood the payment ecosystem. Their business services grew as a result of expanding their cloud services to cover education, financial, municipal and retail sectors. The Tencent Cloud not only contracts the Luohu School district of Shenzhen with the largest software project in China, but also provides SaaS for various other businesses. This has allowed its cloud revenues to grow by 80% over the same time period.

Online Advertising 

With large amounts of users on its platforms, it is only natural to see an increase in advertising revenue. Even though Tencent took a hit through its media advertising, in which revenues were down 28% YoY in Q3 2019, the social media advertising revenues were quick to rekindle that flame. Overall this sector also experienced a revenue growth of 13% to total USD$2.65 billion. 

Exposure in Esports 

As mentioned above, esports and gaming do in fact have a point of separation. Esports is fueled by these popular games yet operates in an industry of its own. This vignette is best described by a quote from Wei Jizhong, former secretary-general of the Chinese Olympic Committee and honorary life vice president of the Olympic Council of Asia, saying “the most significant symbol is that we start to differentiate what is esports and what is just playing video games. So that esports has developed its own field”. Tencent understands this unique relationship which is evident in its partnership with the Global Esports Federation and has dedicated considerable resources to further esports. These resources include investing in all the different esports verticals including media companies, publishers, streaming sites, infrastructure, education and talent acquisition to just name a few. The company is also backed by various Chinese governments and helps to develop a professional and amateur infrastructure in China. For example, in the summer of 2019, Tencent and Hainan government held the Tencent Global Esports Annual Summit where Tencent and the local government would relay their plans for esports prosperity locally and globally. Now I understand that to build a global esports ecosystem will take a lot of work, but Tencent will be in the fourth year of its five-year plan and continues to show its dedication towards esports progression. Also, if there was a business that had the resources to pull off such a feat, it would be Tencent.

Games and Their Prize Pool 

Now for the fun stuff, the games, tournaments and their prize pools. Tencent already caters to a plethora of esports titles including League of Legends, Honour of Kings, PUBG mobile/ Peacekeeper Elite and Clash of Clans. They not only continue to support professional leagues but amateur leagues and competitions as well. The company runs its own Chinese league for League of Legends called the LPL which is sponsored by Nike. Furthermore, Riot a wholly-owned subsidiary of Tencent, puts on one of the largest esports events in the world, the League of Legends World Championships. In 2020, Tencent also has plans to develop the professional league for Honour of Kings called the Kings Pro League (KPL) with six home team venues. The game already has a winter and world championships that Tencent hopes to make global mobile esports events. To provide support for amateur competition, the league will have 6 open slots that will be filled via its semi-pro league, the KGL. The game also supports a Korean League which Tencent will change to a global format with a new name (King Pro League Global Tour) to attract talent worldwide. With a global reach in mind, Tencent focuses on PUBG mobile due to its immense popularity, announcing a USD$5 million prize pool for 2020 and Clash Royale, which has an established league in China, Asia and the Western World. With the emergence of 5G, it does not seem like mobile esports will slow down, and Tencent seems well-positioned to capitalize on this trend.

Largest Tournaments/Events 

Games Tournament Peak Viewership Prize Pool
League of Legends World Championship 2019 3.9 Million USD$2.225 Million
Honour of Kings World Championship 2019 0.764 Million USD$4.533 Million
Peacekeeper Elite Championship 2019 0.130 Million USD$0.429 Million
PUBG Fall Split Global Finals 0.525 Million USD$0.5 Million
Clash Royale CRL World Finals 2019 0.133 Million USD$0.4 Million

2020 could be another extension of the longest bull market in history, or we could see a pullback, no one knows. But market uncertainty shouldn’t stop any investor from investing in some of the highest growing industries in the world, like esports and video games. In a maturing industry, there are still ways to play the sector and reduce some of your risk by picking companies that have a diversified strategy in the industry. For the exhaustive list of reasons above, my pick for 2020 is Tencent. 

Full disclosure: Ben Feferman has a position in Tencent Holdings.

An update on the latest news in the esports sector for January 2020

Esports is a booming sector with a growth rate of around 25% per annum. Esports global revenues are estimated to have increased by 27% in 2019, to exceed US$1 billion in revenue for the first time. The esports global audience in 2019 was 454 million, and this is forecast to reach 645 million by 2022.

The latest major news in the esports sector

January 7, 2020 – Tencent (OTC: TCEHY) invests in Bayonetta and Vanquish games developer PlatinumGames. Tencent already has investments in Activision Blizzard (NASDAQ: ATVI), Ubisoft Entertainment (FR: UBI), and Epic Games (private) (Epic owns the popular game Fortnite), and owns Riot Games. In other Tencent news on January 22 Tencent bid $148 million for online computer games maker Funcom, well known for their ‘Conan the Barbarian’ games.

Tencent owns Riot Games who makes the hit ‘League of Legends’ game played in esports tournaments LoL & LPL


January 7, 2020 – Electronic Sports League (ESL) and DreamHack, both part of the leading international entertainment group Modern Times Group (MTG), announced a three-year-long strategic agreement with Blizzard Entertainment (a subsidiary of Activision Blizzard). The ESL announcement states: “The world’s largest esports company and the premier gaming lifestyle festival organizer will create new ESL Pro Tour formats for both StarCraft® II and Warcraft® III: Reforged™, with Blizzard providing a respective prize pool of over US$1.8 million and over US$200,000 for the first season.”

Note: Activision Blizzard’s most popular esports franchises include Call of Duty, World of Warcraft, Overwatch, StarCraft, and Hearthstone. They also own the esports platform Major League Gaming (MLG) and the Overwatch League (OWL).

January 14, 2020 – Simplicity Esports and Gaming Company (OTCQB: WINR) has struck a deal with Flamengo to administer Flamengo’s esports businesses in Brazil and in the USA. Jed Kaplan, CEO of Simplicity Esports stated: “The ownership of a franchise in CBLoL (Brazil League of Legends) would be a monumental step for Simplicity Esports and we believe we are on a direct path toward such ownership in one of the largest esports regions in the world.” Simplicity is already a well established operator of esports gaming centers and an owner/manager of several esports teams.

January 20, 2020 – Whilst not yet an esports threat – Tik Tok owner ByteDance (private) is readying a move into Mobile gaming to take on industry giant Tencent.

January 27, 2020 – Enthusiast Gaming (TSX: EGLX | OTCQB: ENGMF) graduates to the Toronto Stock Exchange (TSX) from the TSX-V exchange. Their ticker remains as ‘EGLX’.

January 29, 2020 – Fan engagement platform GLHF has partnered with Finnish organization ENCE, Swedish organization GODSENT, and Ukrainian organization Natus Vincere. GLHF plans to launch on a global basis in early March 2020. GLHF aggregates facts on teams, match VODs, live streams, events, and other interactive elements for fans to follow their favorite teams; thereby helping the teams to get closer to their fans and grow revenues.

January 30, 2020 – Esports investment company New Wave Esports (OTC: TRMNF) has entered into a non-binding letter of intent to acquire creative management and production services company Activate Entertainment for $1 million.

The top ten esports tournaments ahead in 2020

  1. Fortnite World Cup
  2. The International
  3. League of Legends World Championship
  4. BlizzCon 2020
  5. Capcom Cup
  6. International eSports Federation World Championships
  7. Overwatch World Cup
  8. EVO (Evolution) Championship Series
  9. Rocket League Championship
  10. The Intel Extreme Masters

Fortnite World Cup – One of the most popular esports events globally

Wrap up

Esports and gaming giant Tencent continued its investment spree this past month adding a stake in PlatinumGames and an offer to buy all of Funcom. This furthers Tencent’s leading place in esports dominating game making/publishing and esports streaming (Douyu, Huya, Penguin Esports).

In 2020 the biggest esports events will be the Fortnite World Cup (Epic Games), the International DOTA 2 Championships (Valve Corporation), and the League of Legends World Championship (Tencent).

2020 will indeed be a big year for esports as the sector continues to grow rapidly beyond one billion dollars in revenues.

Who will win the eSports Streaming Wars?

Esports is set to have another huge year in 2020 and is likely to grow revenues by around 25%+ based on 2019’s estimated 27% increase to ~1.1 billion in revenue. Newzoo forecasts this to reach a staggering US$1.8 billion by 2022. The top 3 revenue regions in order are North America, China, and Western Europe. Revenue is mostly being driven by brand sponsorships, media rights deals, and advertising sales. The streaming companies are growing their revenues fast benefiting from the above.

The esports global audience in 2019 was 454 million, and this is forecast to reach 645 million by 2022.

This week I take a look at the big names and how fiercely they are competing with each other on the streaming side of the esports sector – The ‘Esports Streaming Wars’.

Note: I may cover the Chinese streaming companies in another report.

Amazon ‘Twitch’ (NASDAQ: AMZN)

Amazon Twitch continues to be the US leader of streaming; however in 2019 they did lose some market share declining from 67% to 61%. Losing some big name streamers and stronger competition were factors in the decline. In 2020 we will see if they can hold their current market share.

Alphabet Google ‘YouTube’ (NASDAQ: GOOG) (NASDAQ: GOOGL)

In January Google’s YouTube announced exclusive live streaming deals with three popular gamers: Lannan “LazarBeam” Eacott, Elliott “Muselk” Watkins and Rachell “Valkyrae” Hofstetter. The three moved to YouTube after years of streaming on Amazon’s Twitch. This should help YouTube remain in second position in 2020.

Facebook ‘Gaming’ (NASDAQ: FB)

Facebook gaming was a later entrant to streaming esports beginning only in January 2018. Facebook Gaming saw its market share of the live stream gaming market leap from 3.1% in 2018 to 8.5% in 2019, making it the fastest growing streaming company, among the majors. Facebook’s massive global monthly active user base of approximately 2.5 billion should help Facebook Gaming continue to grow rapidly in 2020.

Microsoft ‘Mixer’ (NASDAQ: MSFT)

In August 2019, Microsoft Mixer secured the popular streamer Tyler Blevins, aka ‘Ninja’, followed by Michael Grzesiek, aka ‘Shroud’ in October. This helped Microsoft Mixer gain market share in 2019.

Enthusiast Gaming  (TSXV: EGLX | OTCQB: ENGMF)

Enthusiast Gaming Holdings Inc. is one of the fastest growing esports companies globally, and one of only a few publicly traded, pure-play esports and gaming companies. It should be noted that they stream using YouTube channels, so are not technically a major direct streaming competitor ‘yet’.

Enthusiast Gaming has the largest gaming network in North America and the English speaking gaming regions. Enthusiast Gaming reaches over 200 million gamers on a monthly basis, with 1 billion page views, via 100+ gaming sites and 900+ YouTube channels.

Global video game streaming market share (excluding the Chinese) by hours streamed in 2018 and 2019

Facebook Gaming and Microsoft Mixer are growing fast

Most popular games in 2019

In 2019 the most popular games on Twitch were League of Legends, Fortnite, and Just Chatting. The big gainer in 2019 was Grand Theft Auto rising to fourth place.

Final remarks

The esports sector continues to evolve at a rapid pace. Given the big money is in sponsorship, media rights and advertising it should be no great surprise the big name streaming companies are fiercely competing to provide the best content.

As for who will win the ‘esports Streaming Wars’ it is a bit early to tell. Amazon Twitch has a big lead with 61% market share; however, it appears their competitors are starting to catch up, with Facebook Gaming and Microsoft Mixer rising rapidly.

Investors can look to play the whole sector via an esports ETF such as ESPO or NERD, the leading streamers (Amazon & Alphabet Google), the rising streamers (Facebook and Microsoft), or the diversified esports pure play stock Enthusiastic Gaming. Or perhaps some of the Chinese leaders, whom I might discuss in another report.