I Don’t Own This Stock Yet, But I Might Soon

Truth be told, my video-gaming days are well in my past. Modern gaming control pads have far too many buttons for my skill set, and the on-screen action is too fast for my aging eyes.

To that end, adhering to Warren Buffet’s advice “buy what you know” pretty much precludes me from stepping into one of these names.

And yet, what little I do know about video gaming coupled with a couple of decades’ worth of experience within the investment world continues drawing me back to video game publisher Electronic Arts Inc. (NASDAQ:EA).

I don’t own any EA stock yet, but I might soon, for a reason that’s truly amazing to investors that don’t keep close tabs in the video gaming market.

The “Hidden Appeal” of EA Stock

You know the company, even if you don’t think you know the company. Electronic Arts — familiarly called “EA” — is the name behind the Madden football franchise, Need for Speed, a bunch of Star Wars games and more.

That’s not what’s so interesting about EA right now though, nor is the company’s semi-consistent and usually impressive growth. Those things are nice, but not the big hook right now. What makes EA stock so curious here is the advent of eSports.

Did you know playing video games can be a legitimate, paying job now? If you’re like the rest of the world, half of you did, and half of you didn’t.

It’s not a joke. eSports is a loose collection of leagues that specialize in the tournament style play of video games. The gamers get paid — some of them quite handsomely — but more than that, fans will pay money to see their favorite players compete in an arena; the gameplay is displayed on a jumbotron just like you’d expect to see a replay at an NFL game.

The numbers are becoming very impressive, very fast too, and 2017 is shaping up to be a breakout year for the business.

Take any and all numbers with a grain of salt, but all-things-gaming research outfit Newzoo estimates 2017’s eSports revenue (all sources) will grow a little more than 40% above 2016’s levels, reaching just a hair below $700 million. By the year 2020, the market will be worth $1.5 billion.

It’s a Big Deal for Everyone Involved

It’s not necessarily a ton of money for a company that did $4.8 billion worth of business last year; eSports revenue is divvied up among a lot of entities. Newzoo’s estimate doesn’t actually consider the indirect benefit to gamemakers though.

Unlike professional sports, participating in professional video gaming can be surprisingly democratized. That is to say, while pros can be assembled into teams and given a contract, it’s also common for individual, amateur players to qualify for a tournament that pays cash money to players. As Todd Sitrin, Electronic Arts senior vice president and general manager of its Competitive Gaming Division, recently noted:

“We’re up to millions of people participating at the base level across our games. Probably in the tens of millions. I don’t know exact numbers on how many people made it to live events, but we certainly have hundreds, several hundreds coming into our live events around the world. Our finals have a much smaller number of players getting invited, but to become the best FIFA or Madden player in the world, you’re competing against millions of players.”

Of course, to all the thousands of wanna-be’s, they have to buy a video game and practice, man, practice.

That’s not the only upside for the likes of Electronic Arts, however.

Not unlike NFL or NBA fans, video gaming fans also want to mimic their favorite players. Rather than buying replica jerseys though, those amateur gamers that attend a video gaming tournament event may well be inspired to buy a game they’ve seen played to see if they can do it just like the pros do.

And as the business of eSports further gels, opportunities for publishers like Electronic Arts to monetize it will better materialize. Tournament sponsorships, for instance, open the door to collecting ticket revenue.

Bottom Line for EA Stock

Don’t get the wrong idea. eSports alone isn’t a reason to own EA stock. It’s one of the bigger (and largely underestimated) reasons though, augmenting all the other things the company is doing right.

Who would have ever thought the job I dreamed of when I was twelve years old is not just a real job for twelve-year-olds now, but a legitimate growth opportunity for the companies making it happen.

— James Brumley


Source: Investor Place