By Jeff Reeves
GameStop grabbed headlines based on the notion that the “smart money” simply didn’t understand this stock. But for investors looking for a less volatile play on the gaming megatrens, here are seven options that may fit better in most portfolios.
Research firm NPD has shown that three out of four Americans, or roughly 244 million of us , play videogames for an average of 14 hours a week. And thanks to a lack of entertainment options outside the home in 2020, gaming sales worldwide surged 20% to a staggering $180 billion .
In fact, gaming is so popular and lucrative that professional esports now has an audience of about 500 million people worldwide — with a 70% increase in the number of viewers in the U.S. last year because of the pandemic and the lack of traditional spectator sports options. And as with so many other tech trends, these recent converts are likely to stick and continue powering the esports business. Here’s one way to put it in context: esports are expected to have almost 800 million viewers by 2024 – nearly as many as about 825 million or so fans of professional basketball worldwide today.
Some of the biggest publicly traded videogame stocks are already old news. Over the last 10 years, gaming powerhouse Activision Blizzard /zigman2/quotes/200717283/composite ATVI -2.81% has surged about 800% compared with about 200% for the S&P 500 index /zigman2/quotes/210599714/realtime SPX -2.14% in the same period, growing to almost $80 billion in market value. And of course there has been the frenzy over GameStock /zigman2/quotes/203755179/composite GME -1.45% that led to a congressional hearing .
But there are a host of up-and-coming companies looking to level up amid continued growth for the industry. If you’re looking to play the gaming and esports craze, here are some options worth a look:
Nintendo /zigman2/quotes/208063194/delayed JP:7974 -2.58% /zigman2/quotes/201616881/delayed NTDOY -2.84% is an icon of the videogame industry. But just five years ago there was talk of “ Nintendo’s Sad Struggle for Survival ” amid waning popularity and weakening finances.
The house of Mario has come back big time, thanks to its innovative Switch console that successfully bridged console and mobile gaming markets. Nintendo’s eShop is now bursting with “casual” games like the smash hit “Among Us,” which was originally built for mobile phones and boasted half a billion players in November. While there are big margins on $70 games or high-end hardware, Nintendo has built both its user base and its software offerings around low-cost diversions that collectively add up to serious revenue.
At the same time, a strange convergence of circumstances have created big tailwinds for Nintendo’s high-end titles. Since its prior console — the Wii U — was a bit of a flop, Nintendo was able to reissue many native games with big price tags during the Switch’s early years. Now the company has planned releases in both its Zelda and Metroid franchises along with a potential upgrade to the Switch itself to drive high-margin hardware sales.
Thanks to these facts and a big pandemic boost, Nintendo stock has doubled from its early 2019 levels and is now trading at its highest levels since 2007. And if the 2021 release schedule lives up to the hype, we could see new all-time highs as this Japanese gaming powerhouse continues its return to dominance in the industry.
If Nintendo has cashed in by connecting with more casual gamers, then Corsair Gaming /zigman2/quotes/207240974/composite CRSR -2.12% shows how to cater to very serious PC gamers. This roughly $4 billion company is a top supplier of gaming-related parts from CPUs to peripherals like headsets and keyboards to specialty components for streaming gameplay on the internet. The streaming business line is particularly interesting, both via competitive esports play as well as commercial gamers looking to win viewers on platforms like Twitch and YouTube.
The company completed its initial public offering in September and is soundly profitable. It’s also growing impressively, with its fourth-quarter earnings report in February showing a staggering 70% revenue growth and 118% profit growth year-over-year. Management has said this is thanks to expansion in all categories, too, and not just one item that’s hot at the moment.
We’ve seen the power of high-end hardware stocks before with companies like the Nvidia /zigman2/quotes/200467500/composite NVDA -3.83% , which is up fourfold from the end of 2018 thanks in part to its best-in-class graphics cards and now worth $370 billion. But what makes Corsair so great is that it’s not a competitor to Nvidia; in fact, when folks look to build a new gaming rig to incorporate components like the Nvidia GeForce 4k graphics card that was recently released, they are likely to upgrade everything else, too.
That could allow Corsair to piggyback this trend in the short term and continue to build on its track record of success.
Singapore-based Sea /zigman2/quotes/202797958/composite SE -6.71% isn’t well known in the West, but that may change quickly given its 2020 stock performance. Over the last 12 months, the stock has surged roughly 420% thanks to amazing growth and big tailwinds behind its unique technology business.