Video games have seen a big surge in usage during the Covid-19 pandemic as consumers stay at home. That's raised interest in video game stocks, including esports stocks.
XFor investors, the video game market is divided into the "pure play" stocks of game publishers and the stocks of tech firms that have varying exposure to the industry.
The former includes video game stocks such as U.S. publishers Activision Blizzard (ATVI), Electronic Arts (EA) and Take-Two Interactive Software (TTWO). Other major stocks in the group include Japan's Nintendo (NTDOY) and China's NetEase (NTES).
The latter group includes consumer electronics giant Apple (AAPL), software leader Microsoft (MSFT) and Google parent Alphabet (GOOGL).
Video games have soaked up a larger portion of consumer time in recent years thanks to the growth of mobile games and multiplayer online games.
Massive Changes In Video Game Industry
In 2020, video game sales totaled $177.8 billion worldwide, rising 23.1% from the prior year, according to research firm Newzoo.
Mobile games accounted for 49% of the total, with sales rising 25.6% year over year. That was a positive trend for video game stocks focused on mobile, including SciPlay (SCPL) and Zynga (ZNGA).
Newzoo estimates that the global video game market will generate $175.8 billion in revenue in 2021. That would translate to a sales decline of 1.1%.
The video game industry is undergoing profound changes in technology and business models. On the technology front, video games have shifted from packaged media to digital downloads and cloud-based streaming. On the business side, microtransactions, subscriptions and esports are an increasing part of the sales mix.
The popularity of free-to-play games, such as Epic Games' hit title "Fortnite" from the battle royale genre, have brought more gamers into the market.
What Are The Best Video Game Stocks?
Investor's Business Daily's Computer Software-Gaming industry group features 17 video game stocks. The group currently ranks No. 167 out of 197 industry groups tracked by IBD. Six months ago, it was No. 68.
According to the IBD Stock Checkup, NeoGames (NGMS) ranks first in the group. It has an IBD Composite Rating of 97. That means it has outperformed 97% of stocks in key technical and fundamental metrics over the past 12 months. The best growth stocks have a Composite Rating of 90 or better.
Tel Aviv, Israel-based NeoGames provides technologies for national and state-regulated lotteries. It also has a portfolio of online games.
IBD's video game stocks group only lists companies that are traded in the U.S. So, it doesn't include some major players like France-based Ubisoft and Japan's Square Enix.
Other companies with diversified operations that include games, such as Microsoft, Sony (SNE) and Tencent (TCEHY), are in other groups.
New Consoles Hit Store Shelves
The video game industry encompasses games for living-room consoles and personal computers as well as smartphones and tablets.
The largest segment is smartphone games at 43% of 2020 video game revenue, Newzoo says. Console games are second with 29% share, followed by PC games at 22%.
Console game sales now benefit from the sweet spot of the hardware cycle. As the installed base of current-generation consoles peaks, publishers have a large market into which to sell games.
Microsoft and Sony launched their next-generation game consoles last holiday season. Microsoft came out with its Xbox Series X console on Nov. 10. Sony followed with its PlayStation 5 machine on Nov. 12. However, the new consoles are in short supply.
Which Video Game Stocks Are Esports Stocks?
Many companies are making a play in the burgeoning esports market. Esports are professional sports competitions for video gamers.
Tencent holds "League of Legends" competitions. Activision Blizzard has competitive leagues for its "Overwatch" and "Call of Duty" games. Take-Two has set up an esports league around its "NBA 2K" sports title.
Last year, esports revenue totaled $950.3 million, down 0.8% year over year, Newzoo says. Revenue came from sponsorships, media rights, game publisher fees, merchandise and ticket sales.
Advertisers are interested in esports for the games' large and growing audience of hard-to-reach millennials. Newzoo estimates the global audience for esports in 2020 was 495 million people, up 11.7% from the prior year. It sees that number rising to 646 million in 2023.
Pure-play esports stocks include Allied Esports Entertainment (AESE), Esports Entertainment Group (GMBL) and Super League Gaming (SLGG). However, those companies are unprofitable and unproven entities. None come close to meeting IBD's CAN SLIM investing criteria.
Are There ETFs For Video Game And Esports Stocks?
Several exchange-traded funds invest in video game stocks and related equities.
Wedbush ETFMG Video Game Tech ETF (GAMR) was the first ETF to target the video game industry. It started in March 2016. Its top holdings include South Korean video game publishers WeMade and Kakao Games and U.S.-based game platform Roblox (RBLX).
VanEck Vectors Video Gaming and eSports ETF (ESPO) commenced in October 2018. Its top holdings are graphics-chip maker Nvidia (NVDA), Singapore-based Sea (SE) and Tencent. It also has sizable stakes in Nintendo and Advanced Micro Devices (AMD).
Roundhill Bitkraft Esports & Digital Entertainment ETF (NERD) started in June 2019. Its top holdings are game hardware firm Corsair Gaming (CRSR) and Activision. NERD also has large stakes in Stockholm-based digital entertainment firm Modern Times Group, Tencent and gaming headset maker Turtle Beach (HEAR).
Are Any Video Game Stocks A Buy Right Now?
Several video game stocks are forming bases and setting new buy points.
Activision stock has been consolidating for the past 18 weeks with a buy point of 104.63, according to IBD MarketSmith charts.
Take-Two stock has been in a consolidation pattern for 19 weeks with a buy point of 215.01.
On June 8, EA stock attempted to break out of a flat base at a buy point of 146.82. But since then it has traded in and out of the 5% buy zone.
Be sure to check out the Big Picture column to see if market conditions are right for buying stocks. And make sure to follow IBD stock-picking criteria.
To find the best stocks to buy or watch, check out IBD Stock Lists. Also consult IBD's Leaderboard, MarketSmith and SwingTrader platforms. Beginning investors should visit the IBD University to get started.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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