In an article for the Motley Fool, Keith Noonan breaks down 3 stocks in the video game industry that are strong buys in February, including one that we recommended back in November:

Activision Blizzard 

Engagement for video games trounces pretty much every other form of media. The interactive nature of games means they captivate a player’s attention, and that’s a big advantage in a world where competition for consumer eyeballs has never been more fierce.

When it comes to shaping the world of interactive entertainment, few companies have played a bigger role than Activision Blizzard . The company is an industry leader that looks poised to continue delivering wins and rewarding long-term shareholders.

The company’s core franchises include genre-defining properties such as Call of Duty, World of Warcraft, and Candy Crush Saga. The company also has perhaps the industry’s single best track record of launching and sustaining new hit properties. It combines a powerful force of development studios and marketing expertise, and it will likely continue to play a leading role in the shaping the industry’s growth.

Activision Blizzard also pays a dividend, and the company has been building an impressive payout growth streak despite the stock’s yield looking relatively small. Shares yield roughly 0.4% as of this writing, while the payout has grown over 170% since the company first initiated its dividend in 2010. Its ability to raise its payout each year is a testament to the company’s consistent profitability, and it looks like Activision Blizzard still has a long runway for dividend and share price growth.

Ubisoft 

It’s been an interesting few years for Ubisoft . The France-based video game publisher missed opportunities with some key releases in 2018 and 2019, but the business has battled back from rough patches and shown it has staying power.

Solid execution over the last year and a variety of tailwinds stemming from the coronavirus pandemic have recently prompted solid performance for Ubisoft stock. The company’s share price has climbed roughly 32% over the last year, and the publisher now has a market capitalization of $12.4 billion.

For a company with proven franchises and development studios, that valuation looks too conservative, and there’s a good chance that Ubisoft stock will surge at some point over the next few years. The company has proven that franchises, including Assassin’s Creed, Rainbow Six, and Ghost Recon have longevity, and it has the resources to deliver new hit series and pursue growth opportunities in mobile, esports, and augmented reality.

The game maker is valued at approximately four times this year’s expected sales and 29 times earnings — levels that look quite reasonable in the context of the company’s solid foundation and growth potential.

Glu Mobile 

Glu Mobile  is a maker of free-to-play mobile games that are geared toward casual players. The small-cap company is worth just $1.5 billion, and it trades at less than three times 2021 sales estimates and 17 times forward earnings. With its own underappreciated individual strengths and the overall video game industry likely to enjoy sustained growth, Glu could blow past its current valuation even if it doesn’t manage to hit any home runs with new releases in the near future.

Thanks to the strength of core franchises, including Design Home, Covet Fashion, and MLB Tap Sports Baseball, management anticipates that bookings will grow between 8% and 10% this year without any contribution from new releases. The company also has four new games set to release in 2021, but the market has underestimated the sturdiness of Glu’s existing lineup. That creates an opportunity for investors.

In addition to new releases and content updates for its existing titles, Glu will likely be making some acquisitions moves in the near future. The company closed out the third quarter with $318 million in cash against zero debt, and management has indicated that it’s in the process of identifying outside development studios that can help push the company’s growth to the next level.

With shares trading at affordable multiples and diverse avenues for the company to outperform expectations, Glu Mobile looks like another buy in the gaming industry.

Source: https://www.fool.com/investing/2021/02/04/3-top-video-game-stocks-to-buy-in-february/

Nerd Street Gamers CEO John Fazio commented on the deal in an article with Esports Insider: “Nerd Street being added to Founders Fund’s portfolio of industry-pioneering organisations is one of our greatest honours to date. Within minutes of meeting Brian, it was clear that he was profoundly aligned with our vision and mission. Backing us during the uncertainty of a global pandemic is a testament to Brian’s bold foresight and an incredible validation for our entire team.”

The pandemic has caused Nerd Street to close their Localhost facilities, but they quickly adapted to a digital platform through online tournaments, coaching, camps, and Nerd Street+, their subscription service. Nerd Street hosts events for a number of games, but have made the most noise with their involvement in Valorant tournaments, specifically being selected to operate the first stage of the Valorant Champions Tour, and their recently completed Valorant Winter Championship Tournament which saw Luminosity Gaming come out on top.

Thanks to its successful shift to a digital platform throughout the pandemic and facilities closures, Nerd Street was able to increase its membership by over 200% since 2019. And in the last year their Twitch channel, which live-broadcasts its tournaments, saw a 4,000% increase in minutes watched and their followers go from 13,000 to over 120,000.

Venture Beat caught up with Fazio regarding the closing of its Localhost facilities and their shift towards a digital platform: “One major way we’re addressing the current climate is through our new digital subscription service. Because we’ve had to shut down our physical venues during the pandemic, we are truly seeing now more than ever the severe access gap in technology for young people across the country to participate in remote learning, let alone play games, because of a lack of home internet access. To address this, Nerd Street Gamers recently announced a subscription service that ensures that students and gamers will have the affordable access to the technology necessary to participate in the awesome social opportunities that esports can provide despite the pandemic (and beyond it).”

With the overall digital shift of gaming and esports, Nerd Street Gamers is in a prime position to capitalize on the opportunity and Founders Fund clearly believes it. With this new funding, Nerd Street should be more than capable of continuing to grow their digital platform and consumer base, and once they can reopen their Localhost facilities they will have two primary sources of growth and revenue to build upon.

1. Mobile games is already accounting for almost 50% of the global games market, it was only a matter of time before that transferred over into esports. In an area of gaming that has historically been dominated by PC games such as CS:GO and Dota 2, mobile esports like PUBG Mobile and Garena Free Fire have entered the top five most overall hours watched esports titles, even exceeding the likes of the big name PC games mentioned in peak viewer counts.
2. Esports organizations are going to continue expanding their business operations and sources of revenue. At first, esports organizations and teams were following the model of traditional sports organizations, which is fine but the market and audience is different for the most part. Since, these organizations have focused more efforts towards building lifestyle brands based on apparel partnerships and content creators to bring their personalities closer to their audience to build a further connection to their fanbases. In adding content creators to their organizations, the teams can leverage the creators reach and audience to bring on new partnerships and sponsorships, while the creators get the back office and administrative capabilities of the organizations that they otherwise would not have access to.
3. The COVID-19 pandemic stopped traditional sports from holding events, and at first from happening altogether. With this, sports organizations needed to look elsewhere to connect with their fans and continue to increase their audience base. A flurry of traditional sports teams have entered the esports world through partnerships, collaborations, investing opportunities, and several other experiments. Over the last few years we have already seen plenty of big name athletes enter esports through investing or their own streaming and content creation, as the world slowly tries to go back to normal, specifically in terms of sports, it will be interesting to see how the two industries continue to not only coexist, but benefit each other.
4. With travel restrictions expected to be in place for the majority of 2021 at the least, big international tournaments that were once dominating the esports industry will be transformed into regional league play following positive results so far. If continued to be successful, this shift can become permanent with a smaller focus on international travel, and a bigger focus on league-based play and regional competition instead.
5. The final trend which isn’t directly about esports is that streaming platforms that have been used primarily for gaming content will be used even more for non-gaming related content. That already began throughout the pandemic as lockdown measures prohibited people from being together, so they needed new ways to interact, and companies and brands needed to find new ways to connect with their consumers. Twitch and Youtube became the top spots to host concerts, political events, live shows, or even just a platform for like-minded people to group together and talk.

Source: https://newzoo.com/insights/articles/newzoos-esports-trends-to-watch-in-2021/

While the evolution of cloud gaming is going to take some years to fully establish itself as a key revenue source in the global games market, some major companies have already begun transitioning with the digital shift; focusing more on subscription based services and digitally downloadable games.

Electronic Arts (EA)  and Microsoft  have both taken strides in expanding their subscription based services with EA Play and Xbox Game Pass respectively, even collaborating together with EA Play being offered on Xbox Game Pass.

Both EA Play and Xbox Game Pass have the same intentions at the heart of their operations; making more games accessible for consumers at a lower but recurring cost. Instead of paying a certain amount for each individual game that a consumer purchases, these services allow them to pay a monthly or yearly fee in order to have access to a wider range of downloadable games.

The shift is real, and for EA they see it happening with some of their top games already as released in their November earnings presentation:

• 56% of units sold through are now digital rather than physical, measured on Xbox One and PlayStation 4 over the last twelve months
• After eight weeks of Madden NFL 21 sales, digital accounted for 66% of units sold
• After the first three weeks of FIFA 21, the number was 50%

Source: https://s22.q4cdn.com/894350492/files/doc_financials/2021/q2/Q2-FY21-Earnings-Slides-Final.pdf

And while EA Play has been successful on its own, reaching over 6.5 million subscribers, now launching on Xbox Game Pass will expand its reach and audience even further, as CEO Andrew Wilson said during the November conference call: “We believe we have the opportunity to double our subscriber base over the next 12 months.” Xbox Game Pass only launched in September, and has already amassed 18 million subscribers, which is a testament to Microsoft’s global reach and products offered.

With EA Play entering the fold, it will surely be beneficial to both services. By making EA Play available on Xbox Game Pass, EA is trying to gain a larger audience by offering its games to a wider consumer base which Game Pass has already established. EA’s main bookings and revenue generation comes from ‘live services & other’ which comprises of all their offerings besides the full game which can include subscriptions, in-game purchases, and other services, its after the games are purchased when EA begins to generate serious revenue. This isn’t EA giving up EA Play freely just because Microsoft is the bigger company, this will bring more consumers to EA Play and the games offered through it, in turn generating further revenue once the players own the games. EA Play is now also available on Steam, which last year had over 120 million users. Through these two platforms, EA is going to reach a much broader audience than it ever could by itself, and creating more interest in its products and future releases.

EA is going in the right direction by focusing on establishing their digital presence and gaining the consumer base needed to be successful in this inevitable cloud gaming shift.

One company to look at is Unity Technologies . Unity has only been public since September of 2020, but since, its share price has risen over 100%. Unity isn’t the traditional gaming company you would typically look to invest in. It doesn’t have the fancy, as well known name, as their primary business is software development and video game development tools.

Unity provides a variety of software for game developers and content creators to use. And this is what makes them such an intriguing investment going forward. Travis Hoium put it perfectly in his article for the Motley Fool: “It’s the platform Unity has built that will be valuable long-term, and it’s stickier than any game by itself because Unity’s customer is the video game developer”. Unity doesn’t have to rely on each individual game to be profitable, as long as the video game industry as a whole continues to grow, Unity’s products will be needed and wanted.

Source: Newzoo

And as it stands that looks to be the case. Newzoo estimated that the the global games market generated US$159 billion in revenue in 2020, and is expected to reach the US$200 billion mark by 2023.

As the gaming market grows, so does the number of people, specifically developers who try to get in it. Yes, Unity’s main customer base features game developing titans like EA , Nintendo , Take-Two Interactive , and Zynga , for starters, but it also features tools that don’t require heavy coding which helps less experienced developers build games and get into the market.

It isn’t just gaming that Unity builds products for. They are consistently investing in building opportunities outside of gaming, in industries like architecture and engineering with 3D design capabilities, automotive designs, and the animation film industry with 3D tech.

These next stats show Unity’s reach both inside and outside the gaming industry:

• Used by 8 out of the top 10 architect, engineering design and design companies in the world
• Used by 9 out of the top 10 automotive companies including Honda, Volvo, and BMW
• 53% of the top 1,000 mobile games in Apple’s App Store and Google Play have been created using Unity’s solutions
• Approximately 90% of the content on emerging AR platforms is made using Unity engine
• 94 of the top 100 global game development companies are Unity customers

Source: https://seekingalpha.com/article/4397153-unity-software-long-term-winner

Source: https://seekingalpha.com/article/4397153-unity-software-long-term-winner

Unity’s growth for the long term will continue to hinge on the increase in their large customer base. Each quarter has seen an increase of the number of customers that generate over US$100,000 in revenue for them, with the current growth rate of the industry, this uptrend is one that should continue.

While Unity has yet to achieve operating profitability due to its continuous investing in R&D and marketing, that does not mean they aren’t fundamentally strong financially. Their operating margin and revenue both drastically improved in Q3 2020 compared to Q3 the year prior, and through the first 9 months of 2020 their free-cash-flow improved by just over US$60 million.

Unity  has positioned itself well for the long-term. Through the expansion of their business operations and strong customer base within the gaming industry, Unity should be a strong play for years to come. Even with significant investment into other industries, they will still be primarily connected with gaming. If you believe in the growth rate of the gaming industry, then you can have faith in Unity too.

With the gaming industry shifting towards a nearly complete digital world, many people, including us at GamingStreet were unsure about GameStop’s future. The new Xbox and PlayStation consoles both featured versions without disc drives, signalling that this could be the beginning of the end for video game discs, and in turn the retailers that sell them.

GameStop’s price target was on average in the US$12-15 range, and now is blowing that mark out of the water. The question people keep asking is how is this happening? Well, simply put; Reddit. It is home to endless amounts of day traders, and once these groups of people got word of others trying to short the stock, they put that to an abrupt halt. Allison Morrow of CNN put it best: “Note to short sellers: I didn’t think I needed to say this in 2021, but internet mobs are unpredictable, ruthless, and relentless.”

Since GameStop  went public in 2002, 100 million of the shares have been traded in one day, all three have happened in the last two weeks. It is truly remarkable was has transpired here. It goes against all the fundamentals of investing; they have had five different CEOs since 2017, sales and profit margins continuing to fall, and aren’t expected to turn a profit until 2023.

This just further proves the power of the internet, as the stock price continues to be volatile, where it goes next is extremely unclear. In the end, GameStop remains questionable from a fundamental perspective, and if the price drops down to the target average, the shares will lose more than 80% of its value.

Three Pillars Strategy

Source: https://esportsentertainmentgroup.com/wp-content/uploads/2020/11/GMBL-Investor-Deck-11.14.pdf

EEG operates its business based on a three pillar strategy: Esports Entertainment & Infrastructure, Esports Wagering, and iGaming & Traditional Sports Betting. All three pillars work in synergy to provide the best products possible for both consumers and investors.

Jaycee Tenn of Benzinga outlines each of the pillars:

1. Esports Entertainment and Infrastructure – the first pillar consists of EGL (tournament platform), Helix eSports (entertainment center), ggCircuit (cloud-based software for gaming centers), and Genji (esports analytics provider)
2. Esports Wagering – the second pillar consists of both Vie.gg (esports wagering platform and LANduel (player-vs-player video game wagering platform)
3. iGaming & Traditional Sports Betting – the third pillar consists of Argyll Entertainment (traditional sportsbook & iGaming) which operates under the brands SportNation and Redzone.bet

Strategic Partnerships

2020 was a big year in terms of partnerships for EEG , mainly in the traditional sports arena:

• Philadelphia Eagles – NFL
• Philadelphia Union – MLS
• LA Galaxy – MLS & LA Kings – NHL

All the partnerships were formed in order for the teams to find new ways to connect with their fans in a unique way. EEG will host branded tournaments for the teams to interact and engage with their fanbases, in an effort to also show the appeal of how esports and traditional sports can coincide with the same group of people. Especially with the previous and upcoming seasons for these teams allowing limited or no fans at all, teams needed to find another way to engage with their audiences, and EEG is a perfect way to do so through the different assets and products they have acquired. As we see more big name brands use esports and gaming to connect with potential consumers, the same goes for professional sports organizations and leagues. They all want to keep growing their consumer base and global audiences, and right now this is the industry that can do that.

They also previously partnered with Allied Esports  to launch the VIE.gg CS:GO Legend Series tournament, which was a great success overall. The tournament caused a 400% increase in registered new users and a 300% increase in customer deposits for VIE.gg during the two-week tournament period compared to the prior two weeks.

Key Acquisitions

It was not just those partnerships that caused EEG to have a big year, and some of those partnerships would not be possible without some of the key acquisitions they made in 2020:

Helix eSports & ggCircuit

• Helix eSports operates five gaming centres in the US, including one located in Massachusetts in partnership with the Kraft Group that is home to the Boston Uprising of the Overwatch League
• Helix also merged with Team Genji, an esports analytics company that already has an existing relationship with FIFA and the NBA 2K League
• ggCircuit offers a cloud-based management system, tournament platform, and integrated point-of-sale solutions for enterprise customers
• Their network contains more than 1,000 connected locations, with clients ranging from GameStop, Dell, Best Buy, and Lenovo among countless others

Argyll Entertainment

• Online sportsbook and casino operator with the UK and Irish markets
• Acquisition includes flagship gambling brand SportNation.bet

Esports Gaming League

• Provider of live and online esports events and tournaments
• Services include full turnkey esports events, live broadcast production, game launches, and online branded tournaments
• Will be used in the partnerships with the major professional sports teams to run their tournaments and events

Lucky Dino

• A Malta licensed online casino operator
• Bring in over 30,000 monthly active players

These acquisitions should help EEG leverage the esports betting and tournament growth. They are now able to meet their customers needs globally through esports tournaments, events, betting, and casino play. Together, it will lead to higher interest and engagement from consumers, possible investors, and partners which is evident through some of the new partnerships that were formed based on these acquisitions. Their moves have enabled them to hit each pillar of their business strategy, and it all seems to be coming together for EEG going forward.

Esports Entertainment Group has not reached its full potential. Still a small cap organization with their market cap currently sitting under US$100 million, there is substantial room for growth in this market, and with these new partnerships and acquisitions set to be a part of the organization for a full year for the first time, 2021 could be a big one for EEG. They have firmly committed to their three pillars business strategy going forward, and have made massive decisions under that guidance for the future. Now might be the right time to get involved as esports betting continues its rise globally, and EEG is set up to go along with it.

Enthusiast is excited to announce that it has signed an integrated sponsorship deal with @Samsung. The multi-platform sponsorship will utilize the breadth of #EGLX’s reach in the coveted Gen Z and Millennial demographics. #gaming #esports https://t.co/wAeu6yVwQE

— Enthusiast Gaming (@WeAreEnthusiast) January 18, 2021

They have announced a new multi platform sponsorship deal with Samsung. The partnership is to leverage media advertising, custom content, esports sponsorships, influencer marketing, and entertainment activations across Enthusiast’s diversified fan engagement platform. This will include:

• Product placement and promotional activity with team influencers and brand ambassadors, including during live streamed content,
• Luminosity Gaming team sponsorship, including logo placements on team jerseys and at various entertainment activations,
• Custom content integrations within certain Enthusiast media Web and You Tube properties,
• Logo placement on social media channels,
• Display media advertising across Enthusiast media channels,
• Sponsorship of 2021 EGLX event

Enthusiast  is the largest gaming media network in North America with its 300 million monthly users across all their platforms. Their users are spread out across three divisions: media, events, and esports, and Samsung has hit each of these aspects in their deal. Utilizing Enthusiast’s media capabilities with their 100+ different web platforms and 1,000+ Youtube channels for advertisements and content integrations, sponsoring EGLX 2021, the largest gaming expo in Canada, and lastly sponsoring their esports team; Luminosity Gaming, which features some of the top teams and creators in the world such as xQc, Muselk, Tori Pareno, and Fresh.

CEO Adrian Montgomery had this to say on the deal: “We are thrilled to announce Samsung as an Enthusiast gaming partner and to work with them across our suite of integrated media, esports and entertainment assets to create awareness and drive share for their leading PC offerings, exclusively designed for gamers. It is an honour to work with Samsung, a global leader in electronics, and to have their logo on our Luminosity jerseys.“

Recent Headlines

In November, they announced their plan to list on NASDAQ, a natural step forward for Enthusiast Gaming  as they have received immense interest from investors both in the United States and internationally.

Back in December, they were ranked 7th on Forbes’ list of most valuable esports companies for 2020. Going from unranked the year prior to 7th is a steep improvement in itself, but there is a case that they should be even higher. Given the fact they have the highest estimated revenue total on the list, as well as their various avenues they use to generate that revenue besides esports, it could be seen that Enthusiast Gaming is the most valuable esports company, instead they received the lowest multiple due to their lower percentage of revenue tied to esports, which was used to estimate the valuation of each company multiplied by their revenue.

This isn’t Enthusiast’s only major partnership over the last couple of months. During the US Presidential election, they were enlisted by the Biden-Harris campaign in an effort to target gamers to go out and vote. Leveraging their roster of talented and popular influencers and creators, they were able to drive voter engagement through Fortnite maps. With 65 million of their 300 million monthly users residing in the US, the goal of the partnership was to be able to reach Gen Z and Millennial demographics, which comprises 70% of Enthusiast’s audience, making this a great way for the Biden-Harris campaign to connect with potential voters.

Enthusiast Gaming  keeps growing their audience and their partnership portfolio, making them one of, if not the most intriguing gaming company for 2021 and beyond. It will be great to see how this new Samsung sponsorship unfolds, and what else they have in store together for the future.

Bragg Gaming is an innovative online gaming solution provider, and with its primary asset ORYX Gaming, they offer a turnkey solution for retail, online, and mobile iGaming platform, and an advanced casino content aggregator, sportsbook, lottery, marketing, and operational service.

CEO Adam Arviv and newly appointed board member Paul Godfrey shared their thoughts on the news, as well as what it will do for Bragg  going forward:

“Uplisting to the Toronto Stock Exchange was one of my immediate goals when stepping into the CEO role,” said Arviv, adding “It’s a significant milestone in our growth strategy, and we’re pleased that our strong performance has allowed us to make the move to the senior market.”

“The listing on the TSX will generate increased awareness among institutional and global investors and will put the company squarely in the sights of major industry analysts,” Godfrey said, “As the global online gaming industry continues to expand at an exponential rate, investors are looking for companies with the technologies and expertise to lead the way, and Bragg is a prime example.”

This hasn’t been the only substantial news involving Bragg Gaming in January, as last week they announced a partnership with global online betting and casino operator, Betway. The deal includes Betway using ORYX Gaming’s entire RGS portfolio that includes games such as GAMOMAT, Kalamba Games, Givme Games, Golden Hero, CandleBets, Peter & Sons and Arcadem.

For a growing company in an emerging market this was the next step needed. With their recent partnership with Betway, along with the increased awareness to potential investors and other companies from the uplisting, Bragg is set up well to continue their growth.

The new G2 jersey will contain a number of unique features, such as AEROREADY technology which is designed to ‘keep the fabric dry and breathable’. Additionally, the jersey is set to include a ‘subtle hologram image’ of Carlos Rodriguez’s face, the founder and CEO of G2.

The deal does not stop there, on top of providing apparel for G2s esports players and the teams new jerseys, the two powerhouse European organizations will release a lifestyle apparel collaboration. This has been a trend over the last couple of years for several esports teams and organizations, as they have looked to expand their revenue avenues.

G2 continues to expand their partnership portfolio, as Adidas joins the impressive list that includes Domino’s, Pringles, Mastercard and BMW, among countless other big names brands.

Carlos Rodriguez had this to say on the partnership: “You can argue that there’s been a bunch of ‘non-endemic’ brands that have been included or involved in esports, but this is one of the first moments that I truly see that involvement goes beyond just putting the logo on a jersey or just appearing in the website as a logo. I think that this is very clearly different than most of the stuff you have seen already. After dealing with adidas throughout all these months and discussing with them strategy, and discussing with them a lot of matters, I can tell you already that adidas thinks unlike most corporations. They’re actually very ambitious and cutting edge in the way they think about where the next move should be.”

This partnership continues to prove how big esports has really become and how big it can be going forward. The gaming culture is continuing to grow, and big name brands like Adidas and others want to be a part of it. The audiences for esports teams want to be a part of the team, the more the organizations create these lifestyle brands and collaborations, the more their fans can connect with the teams and their players.

Source: https://esportsinsider.com/2021/01/g2-esports-announces-major-adidas-partnership/