Investors should pay attention to esports growth in the US

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The world of competitive video games is coming out of “stealth mode” in the United States, analysts at Needham say, and the firm believes investors should pay attention to how its growing popularity will drive future profits.

Known commonly as esports, the category is essentially defined as people competing in a video game with a live audience, who is either at a venue or online. While both esports viewership and video gaming in general have grown, Needham analysts Laura Martin and Dan Medina wrote in a note to investors that the category has changed recently. That change has come through the U.S. popularity of the video games Fortnite and Overwatch, which the firm said “unmasked” the category’s “economic power in 2018.”

“Why have you never heard of eSports? Because zero of the top 30 earning players in the world were from the US in 2018,” Martin and Medina said. “Also, the top 10 professional players earned $1-2mm each in 2018, well below other professional US athletes.”

But the analysts argue that Fortnite and Overwatch are changing that, citing recent data on playing time and viewership.

“Globally, one out of every three (ie, 33%) 18-25 year olds spent more than an hour a day playing video games,” Needham said.

Investors can gain access to the growth of esports through several public companies in the video gaming and esports segments. Needham pointed to Activision Blizzard and Electronic Arts – two companies the firm has each given a buy rating.

Last year, nearly 400 million people watched esports competitions, Needham said. At the same time, 250 million people played Fortnite. The popular battle royale video game helped drive esports revenue last year, Needham said, as the category is set to bring in $1.1 billion this year – up about 22% from 2018.

Needham also cited a recent survey that of esports viewers, which found there were 63 million U.S. viewers last year. That’s in line with viewership of the National Basketball Association (NBA).

“Only the NFL (at 139mm viewers) and MLB (83mm viewers) had more viewers in the US in 2018,” Needham said.

The analysts argued that esports are not a fad, citing the rise in scholarships at U.S. colleges, increase in purpose-built stadiums, rising investment, viewership growth and even the potential for esports to be added to the Olympics.

“eSports prize pools totaled $160mm in 2018 and we expect this to grow by 25% to $200mm in 2019,” Needham added.

– CNBC’s Michael Bloom contributed to this report.

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