2020 will go down as a banner year for esports.
In terms of engagement, time spent watching esports on platforms like Amazon.com Inc (NASDAQ: AMZN)-owned Twitch rose to an all-time high last year as gamers sheltered in place.
That performance was driven by sharp rallies in video game stocks like Activision Blizzard, Inc. (NASDAQ: ATVI), Take-Two Interactive Software Inc (NASDAQ: TTWO), and Nintendo (Pink: NTDOY), all of which made new all-time highs last year.
2020 performance of ESPO compared to several of the largest U.S. listed video game stocks
Source: Benzinga Pro
It seems as if 2020 was the perfect storm for esports. The industry was buoyed by gamers having fewer in-person entertainment alternatives, a continued flow of new title releases, and the release of the PlayStation 5 and Xbox Series X consoles.
Such enthusiasm has resulted in drastically higher valuations for companies with esports exposure. But the huge run has not made industry experts any less bullish. In fact, there’s a case to be made that the esports story is only just getting started.
“The space is experiencing structural long term growth,” said JP Lee, ETF product manager at VanEck. “It's a combination of these big picture trends—people wanting to play video games, interact with their entertainment lives online, cord-cutting, and demographics.”
Despite a slight decline in industry revenue in 2020 (mostly as a result of canceled live events) gaming market research firm Newzoo is projecting esports revenue to hit $1.8 billion by 2022. That would represent a nearly 100% increase from 2020.
There are a few factors at play here. The biggest revenue drivers for the industry are expected to be a combination of increased media rights, in-game purchases, and recovering live event sales.
Globally, more people watch certain esports events than the Super Bowl, with much of that viewership coming from emerging markets like China, India, Indonesia, and Brazil. This trend also makes esports a demographics play, Lee said.
“I think there is a case to be made that things are a little overvalued right now. But I would say the long term trends are pushing us in a direction where more people are going to be playing video games 10 or 20 years from now than they are today.”
According to Lee there are other drivers as well, like the rise of cloud gaming and the continued push towards things like the Metaverse—the virtual reality-enabled universe that will be populated by video games.
“Combined, they make for an exciting future for esports,” he said. “It's as good as it's ever been today, but it's not as good as it's ever going to get.”
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