(Bloomberg) -- Small-cap esports companies can benefit as more advertisers find value in the industry’s ability to attract a younger, richer audience and as the industry builds out infrastructure, according to Stephens Inc.
The firm initiated coverage of two esports companies, rating Allied Esports Entertainment Inc. as a buy-equivalent and Super League Gaming Inc. as a hold-equivalent and setting their price targets at $5 and $3, respectively. The combined market value of the two southern California companies is less than $90 million.
Shares of Allied Esports rose 3.3% to $2.84 at 1:14 p.m. in New York, paring earlier gains of as much as 9.1%. The company’s arenas are well positioned to capitalize on demand for in-person esports events, Stephens said. Super League Gaming, which runs an esports community and content platform, rose 6.4% to $2.81.
Gaming has an “enviable position” due to its main audience being young, digitally native and affluent, analyst Jeff Cohen said in a research note. While esports is still in its nascent stages and currently under-monetizes on a per-viewer basis compared to traditional sports, advertisers have started to look at the industry as a way of connecting with an increasingly tough-to-reach demographic.
“Esports leagues and tournaments have begun to see an influx of non-endemic sponsorship money,” Cohen said. He highlighted T-Mobile US Inc., Toyota Motor Corp. and Sour Patch Kids as sponsors of Activision Blizzard Inc.’s Overwatch League.
The industry’s revenue streams are largely the same as those for traditional sports, including sponsorships and advertising, merchandise and tickets sales, and media rights. Stephens sees those revenue streams continuing to grow as brands not linked to gaming recognize the return on investment of marketing to the audience that esports attracts.
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