According to Grand View Research, the esports and gaming industry is growing rapidly. By the year 2027, it will be worth around $6.82 billion after enjoying a compound annual growth rate (CAGR) of more than 24%.
Many esports and gaming enthusiasts who are looking for ways to exploit the stock market for financial freedom are starting to make investments. These investors know which companies in the space are the top dogs. The fact that most people enjoy video games makes research far less daunting when investing in esports than in other, less sexy industries like utilities.
But with so many esports and gaming companies out there to choose from, how do you choose the best companies in the space to invest in? Here are some top stocks to consider.
Best Esports Stocks to Buy in 2022
The esports and gaming industry is booming, with much of the growth being a side effect from the recent pandemic. When COVID-19 took hold around the world, traditional sports halted, and consumers were looking for things to do while under lockdown orders.
During this time, esports viewership grew rapidly. According to Statista, the growth in gaming interest is likely to continue.
During the pandemic, those who were into video games had nothing better to do, and many who wouldn’t have considered playing them in the past found themselves picking up the controls and immersing themselves in the gaming ecosystem.
Now, with a whole new wave of consumers in gaming and a growing esports audience, it’s time for the big players in the industry to capitalize.
What stocks give you the biggest opportunities in the industry? Below you’ll find my top five picks, all of which are great options to consider.
1. Activision Blizzard, Inc. (NASDAQ: ATVI)
You Can’t Talk About Gaming Without Mentioning Activision Blizzard
- Market Cap: Activision Blizzard is one of the largest gaming companies in the world, trading with a market cap of more than $54.5 billion.
- Earnings History: The company has a strong history of beating analyst expectations in terms of earnings, which it has done for the past four consecutive quarters. All told, the company has produced an average positive earnings surprise of over 9%.
- Dividend Yield: The current dividend yield on the stock is 0.67%. Over the past five years, the dividend yield on the stock has ranged from 0% to 0.88%, averaging 0.57%.
Many who follow the esports and gaming industry closely will be surprised to see Activision Blizzard on this list, considering the wave of blues that has hit the company and the stock. To address the elephant in the room, the stock has recently seen a dramatic decline as a result of delays in the launches of Overwatch 2 and Diablo IV, leading analysts to downgrade the stock.
On top of the delays, the company has been dealing with a PR nightmare after an employee walkout resulting from management’s tone-deaf response to allegations of sexual discrimination and harassment. Additionally, co-head Jen Oneal stepped down after a short run in the leadership role that began in August 2021.
Nonetheless, there’s a strong probability that a significant undervaluation in the stock exists.
The company is the owner of several esports leagues, hosting several esports events per year. Keep in mind, we’re talking about the company behind Call of Duty and Overwatch, two of the most popular video games ever made and the center of some of the most popular esports tournaments in the space.
Although delays and discrimination are concerning, the stock has been thoroughly hammered, falling more than 32% from its highs in February.
Keep in mind that these declines have happened even in the face of gains in revenue and earnings, and consistent earnings beats quarter after quarter.
The bottom line is that even though the company is shrouded in bad press at the moment, general consumers and esports teams alike consider the company’s games to be legendary.
Moreover, the biggest declines were seen shortly after the company announced delays in the launches of Overwatch 2 and Diablo IV. However, delays in game launches have become more commonplace these days, as the world’s leading producers of video games have begun focusing more on launching polished games free of glitches rather than rushing to market and patching bugs later.
All told, there’s no question that Activision Blizzard will bounce back. The only real question is when it will happen. When it does, those who own the stock will be grinning from ear to ear.
2. Electronic Arts Inc. (NASDAQ: EA)
Leader in Sports Gaming With Massive Franchises
- Market Cap: EA is another of the world’s largest esports and gaming companies, trading with a market cap of nearly $40 billion.
- Earnings History: EA has produced stellar earnings over the past four consecutive quarters, beating analyst expectations each step of the way. Over the past year, the average quarterly earnings surprise has been 18.7%.
- Dividend Yield: Like many others in the gaming and esports space, Electronic Arts currently pays no dividend.
While Electronic Arts had its ups and downs throughout 2021, the stock has remained relatively flat, gaining less than 2% cumulatively. However, this is yet another company that many believe to be undervalued.
Electronic Arts, better known as EA, isn’t just any game developer. It’s the developer that has signed into partnerships with the National Football League (NFL), Fédération Internationale de Football Association (FIFA), and several other massive sports franchises to develop a long line of games like Madden NFL and FIFA. The company is also the publisher behind non-sports-related hits like The Sims and Apex Legends.
In the world of competitive gaming, there are few in the esports industry that have garnered nearly as much attention as EA. Gamers from all over the world dream of competing for six-figure prizes at some of the gaming industry’s most popular tournaments hosted by the company.
If EA’s past is any indication, there will be plenty for investors to look forward to in the future.
One of the biggest draws for investors has to do with the company’s coming game releases. Not only have EA’s sports-related titles done incredibly well, in November 2021 the company launched Battlefield 2042, another game in its popular Battlefield franchise. Many experts expect this to be the best-selling title from the franchise to date, setting the stage for strong Q4 revenues, as the game is likely atop many holiday shopping lists.
All told, EA is a force to be reckoned with in the gaming industry, and thanks to a lackluster year of performance in the stock in 2021, a clear undervaluation is being born, setting the stage for a strong growth opportunity.
3. Amazon.com, Inc. (NASDAQ: AMZN)
Yes, Amazon is in Gaming Too
- Market Cap: Amazon is one of the largest companies in the world, currently trading with a market cap of nearly $1.8 trillion.
- Earnings History: Historically, the company has smashed earnings expectations, beating analyst projections in the past three out of four consecutive quarters. Even with a painful 32.75% miss in the most recent quarter, the average quarterly earnings surprise over the past year has clocked in at 38.2%.
- Dividend Yield: Throughout its history, Amazon hasn’t been a dividend-payer. Instead, it piles its profits back into the company in an effort to expand, and with the company being one of the largest in the world, those efforts have definitely been fruitful.
You may be surprised to see Amazon on a list of the top gaming and esports companies, but it’s important to keep in mind that the company isn’t just an e-commerce powerhouse. It has its fingers in various areas of the tech industry as a digital conglomerate.
The company isn’t a game publisher, although it does sell video games on its e-commerce platform. Nonetheless, the company is a key player in the gaming market even beyond its role in the retail distribution of video games.
Amazon acquired Twitch, one of the largest game-streaming platforms in the world, in August 2014.
Twitch is a lot like YouTube. However, the big difference between the two is that while YouTube provides various types of streaming content, Twitch is a platform that focuses on streaming gameplay, giving players a way to show off their skills and esports teams a great venue for connecting with their audiences. This makes Twitch a top-pick among esports enthusiasts in terms of digital entertainment.
However, when you purchase shares of this stock, you’re not just purchasing exposure to Twitch. You’re purchasing exposure to Amazon.com’s entire ecosystem of opportunities and enjoying the stability that comes along with investing in one of the world’s largest companies.
At the end of the day, Amazon has grown from nothing to a dominant player in several high-value markets over the years and, by all accounts, that growth is far from over.
4. Huya Inc. (NYSE: HUYA)
An Underdog That Could Become a Massive Winner
- Market Cap: Huya is the smallest company on this list by market cap, trading at an enterprise value of around $2.67 billion, and just making its way onto the large-cap playing field.
- Earnings History: As a smaller, newer company, Huya’s earnings have been interesting to follow. During a couple of the past four quarters, analysts didn’t even provide expectations. In the most recent quarter, analysts didn’t even expect that the company would produce a penny of profit, but it surprised investors by reporting earnings of $0.34 per share.
- Dividend Yield: Huya has not yet declared a dividend.
Of all companies on this list, Huya is definitely the smallest and one of the riskiest bets. However, many argue that the stock is significantly undervalued at current levels, and I happen to agree.
Huya was one of the pioneers in the game streaming industry in China and has quickly grown to become the largest game streaming platform in the region. As a result, many have compared it to Twitch, calling it the Twitch of China.
As a game streaming service, the company plays an integral role in the esports industry in the region, connecting fans with teams and setting the stage for the next wave of Chinese esports stars.
While what the company is doing from an operational perspective has been impressive, the idea behind the investment is more of a political bet than one aimed at the company’s operations.
Over the past year, the Chinese government has been flexing its muscles, enacting a wide range of laws that have hampered businesses in several sectors, including gaming. As a result, investment interest in companies in the region have faded amongst fears that new laws may impact corporate earnings capabilities.
Unfortunately, the selloff has been significant for some stocks, and Huya is one of those stocks. In the past year, the stock has given up more than 50% of its value, with no real negative catalyst to speak of. At the same time, the stock had no real reaction to the recent and dramatic earnings beat announced by the company.
Over time, political fears in the region are likely to subside, and when this happens, the hardest-hit companies in the recent Chinese stock selloff will look like heavily discounted gold nuggets. I believe Huya falls into this class of stock.
5. Take-Two Interactive Holdings, Inc. (TTWO)
A Growing Company with Significant Upside
- Market Cap: Take-Two Interactive may not be the largest company on this list, but its market cap of more than $20 billion is nothing to shake a stick at.
- Earnings History: The company isn’t just known for beating earnings expectations, it’s known for smashing them. Over the past year, the average earnings surprise produced by the company was over 100%.
- Dividend Yield: Like many in the tech industry, TTWO does not pay dividends.
Take-Two Interactive Holdings is a game developer that has had some pretty significant hits in the past. Its portfolio of companies includes game publishers like Rockstar Games, 2k, and Firaxis Games. Companies under its umbrella are the developers behind wildly popular franchises like Grand Theft Auto, BioShock, Borderlands, and Civilization, plus a wide range of other games that capture consumer attention and imagination like nothing else.
Beyond its activities as a game developer, Take-Two is also a major player in the esports industry. The company currently owns a 50% stake in the NBA 2K League, one of the most popular esports leagues in the world.
Unfortunately, however, 2021 wasn’t a great year for the stock. While the company smashed expectations in all earnings releases all year, the investing community seems to have shunned the stock, leading to declines of 12%.
Nonetheless, many argue that the declines are an opportunity. The company has produced stellar revenue and earnings all year, and experts suggest more growth is on the horizon with positive guidance.
Many investors, like Warren Buffett, have made massive amounts of money buying stocks when companies were down on their luck or the stocks were simply undervalued. What we’re seeing from Take-Two Interactive stock suggests it might be one of these opportunities.
Consider Exchange-Traded Funds (ETFs)
If you’re not interested in doing the research required to choose individual stocks — or simply don’t have the time or don’t know how — don’t worry. There’s another way to gain exposure to solid picks in the esports industry.
One of the best ways is to buy into a themed exchange-traded fund (ETF) that’s centered around esports. A couple funds to look into in this category include the VanEck Video Gaming and eSports ETF (ESPO) and the Global X Video Games & Esports ETF (HERO).
ETFs pool money from a large number of investors and use those funds to buy shares in esports companies. As the companies grow or pay dividends, the profits are enjoyed by all shareholders of the fund.
The esports industry is an exciting one. Whether you’re a gamer or esports enthusiast, or you don’t play games at all, it can be an incredibly lucrative investment opportunity.
However, as is the case when investing in any sector, it’s important to do your research before risking your hard-earned money. After all, each company is unique, offering investors a different mix of opportunity and risks.
Fortunately many people find researching gaming stocks to be fun. After all, you’ll have the opportunity to learn about the companies behind the games you play, find out about upcoming titles, and potentially earn a return for doing so.