ASX game integration: investors gain stock market exposure to video games and esports with new ETF
GAME is the first ETF focused on video games and esports to list on the ASX.
Exchange trade fund (ETF) Betashares Video Games and Esports’ (ASX: GAME) is the first gaming ETF to list on the ASX, and its performance is showing the importance of video games or esports as a potential investment within a rapidly growing multi-billion-dollar industry.
Noobs* who have never heard of Overwatch, Red Dead Redemption and Minecraft are doing themselves out of more than frivolous fun with a joystick.
Investment-wise they are also missing out one of the fastest-growing entertainment sectors of the millennium: e-gaming.
Some years ago, the sector morphed from the domain of vitamin D-derived misfits to become a multibillion-dollar industry.
The esports sector is not confined to teenagers’ dank bedrooms but is reflected in professional events, big-dollar sponsorship and tournaments that fill whole stadia.
Numbers house Statista estimates the video games sector currently is worth US$372 billion (A$560 billion) and is growing at a compound annual rate of 7.8%. That implies that by 2027 the market will be worth US$502 billion, with mobile games accounting for US$315 billion.
Separately, PricewaterhouseCoopers estimates a US$320 billion market by 2026. The firm also reckons the sector grew 26% between 2019 and 2021, as millions of new gamers bought consoles during COVID-19 lockdowns.
The one that got away
Despite this huge potential, the ASX has not been a happy hunting ground for investors.
The biggest listed exponent is Playside Studios (ASX: PLY), valued at $126 million, while the $60 million market cap, Singapore-based iCandy Interactive (ASX: ICI), claims to be “the largest independent games developer in Australia, New Zealand and Southeast Asia.”
Smaller players include Streamplay Studios (ASX: SP8, formerly Emerge Gaming), Mighty Kingdom (ASX: MKL), Fatfish Group (ASX: FFG) and Mogul Games (ASX: MGG, formerly Esports Mogul).
These companies have struggled to gain traction under the ASX spotlight – and so too did another minnow called Animoca Brands.
In a remarkable turnaround, Animoca delisted in March 2020 after two private injections totalling US$200 million, which implied a value of US$2.2 billion.
Animoca was ranked 16th in the Financial Times 2023 ranking of high growth Asian Pacific companies, with stated revenue of US$300 million (as of 2021).
Another way to play the game
Investors may well feel pwned** by the ASX experience, but another e-gaming opportunity is by way of the first ETF on the ASX.
Betashares’ Video Gaming and Esports ETF (GAME) listed on 7 February 2022, with the remit of offering investors a diversified exposure to the burgeoning global sector.
The fund tracks the performance of the Nasdaq CTA Global Video Games and Esports index, less fees and expenses.
“With management costs of only 0.57% per annum (or $57 for every $10,000 invested), GAME provides cost-effective exposure to the video games and esports industry in a single ASX trade,” the company says.
GAME consists of around 50 stocks, the biggest being the New York Stock Exchange listed Roblox Corp, which accounts for 8.6% of the portfolio.
California-based Roblox doesn’t develop its own games, but is a platform that allows users to program games and play game created by other users.
Other key constituents are Californian games publisher Electronic Arts Inc (8.3%), New York publisher Take-Two Interactive Software (8.3%), and China’s Netease Inc (7.7%) and Tencent Holdings (7.6%).
Nintendo included in GAME’s portfolio
Well known for owning titles including Mario Kart, Minecraft, Animal Crossing, Legend of Zelda and Pokémon, Japanese behemoth Nintendo is also a prominent inclusion.
Interestingly, US stocks account for only 28% of GAME’s portfolio, with Japanese and Chinese stocks representing 26% and 22%, respectively.
The sector’s revenues are generated from activities well beyond selling games in the first place.
PricewaterhouseCoopers estimates one-third of revenues come from microtransactions: paraphernalia such as magic swords or racing cars to increase their scores.
For instance, Roblox is free to join, but users are encouraged to buy virtual currencies (with real money) to upgrade their games or procure accessories for their avatars.
As the experience of the ASX e-gaming juniors attests, it’s always hard to translate the potential of even the most burgeoning sectors into hard revenue and profits.
Since listing, GAME has returned a negative 22% in a difficult period for tech stocks generally.
However, in the past month it’s risen more than 8% to last trade at $9.41 on 27 March.
But as with other ETFs, it allows investors to play the game without the need to pick individual winners.
GLHF***
*inexperienced players
**beaten in a game
***Good Luck Have Fun