A balanced portfolio has a mix of stocks from mature and high-growth industries. Stocks from the mature industries are generally less volatile and have stronger balance sheets. High-growth stocks are all about capital appreciation. And if you’re looking for some big growth, it’s time to look at esports stocks.
One industry that looks promising for the coming years is the esports industry. According to estimates, the esports industry is expected to grow from $694.2 million in fiscal 2017 to $2.2 billion by fiscal 2022.
The esports audience is also expected to increase, from 395 million in 2018 to 646 million in 2023. Clearly, there is big market potential here, and there are several companies trying to grab market share.
With that in mind, here are three promising esports stocks that can deliver healthy returns:
Esports Stocks: Activision Blizzard (ATVI)
ATVI stock has already been a value creator with gains of 64% in just the last year.
It’s worth noting that the company already has a big user base. Activision has monthly active users of 102 million, Blizzard’s MAU stands at 32 million and King has 273 million MAU. As Activision Blizzard pushes for growth in the esports business, the company can leverage it’s existing user base to accelerate growth.
In terms of specific developments, YouTube has reportedly paid $160 million for Activision Blizzard esports exclusivity. Further, the company has also tied up with Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud to serve as the preferred provider for Activision Blizzard’s game hosting infrastructure.
In the coming quarters, Overwatch League and Call of Duty League have the potential to make it big. Investors bullish on the esports opportunity should therefore consider ATVI stock.
NVDA stock has been another value creator for investors in the last year. The stock has surged by 15%. With innovation-driven growth, I believe that Nvidia has even more upside potential.
Specific to esports, Nvidia offers the GeForce GTX 10 Series graphics cards. The card is already being used in top esports games globally. It goes without saying that as the esports market gets bigger, the sale of graphics card will accelerate. Nvidia therefore stands to benefit from the promising growth outlook.
Earlier this year, Nvidia also announced the new G-SYNC esports displays. This is in collaboration with Asus and the displays will be available later in the year.
I want to add here that with the novel coronavirus pandemic, the market for esports can grow faster than expected. Nvidia is likely to benefit from this trend.
Analyst estimates point to earnings growth of 16.9% on an annual basis for the next five years. This factor makes NVDA stock attractive even after its big rally.
It is likely that China will be the biggest esports market. With that in mind, it makes sense to consider exposure to a company that is focused on China.
So where should you start? Of all esports stocks in China, HUYA stock is the one worth considering. As an overview, Huya is the largest game streaming platform in China. As of Q1 2020, the company reported 151 million monthly active users in the country.
In September 2019, Huya inked a pact with ESL, which is the world’s largest esports company. This joint venture will bring ESL’s global competitions to China. Further, Modern Times Group has also formed a strategic partnership with Huya for esports expansion in China.
These developments should help Huya make strong progress in the esports market and benefit from the potential growth in the coming years.
From a stock price perspective, HUYA stock has declined by 26% in the last year. I believe that this is a good opportunity to accumulate the stock with a medium- to long-term investment horizon.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.