4 Stocks to Buy That are Riding the Esports Wave

Lots of people play video games. Lots of people also like watching live streams.

Esports, which is competitive video gaming, has created demand for the combination of the two.

As esports has increased in popularity, demand to watch esports stars (competitive professional video gamers) play games via live stream on various platforms has increased too.

As consulting and accountancy firm Deloitte puts it:

“Whether it’s professional events or watching individual player streams, many consumers don’t just like playing video games; they like to watch the best play against one another.

Gaming platforms attract millions of daily viewers, thanks to the close interaction between esports pros and their fans, both of whom often stream their own game play live.”

Recently, the live streaming of esports stars playing games has been a growing trend due to the increasing penetration of video games and fast internet connections around the world.

In the future, demand could increase even more given the spread of 5G, which increases download speeds for mobile.

Given the tailwinds in the sector, here are four companies that investors can buy now that benefit from this mega trend.

1. Huya

Huya Inc (NYSE: HUYA) is what many people call China’s Twitch. Huya is both pretty big and growing quickly.

In terms of user base, Huya is one of the largest game live streaming platforms. In Q1, the company’s game live streaming platform, Huya Live, had 151.3 million monthly active users.

In terms of growth, Huya’s first-quarter sales rose 47.8% year-on-year to RMB 2.411 billion (US$344.6 million) and its adjusted net income attributable to Huya for the quarter increased 100.7% year-on-year to RMB 263.4 million.

2. DouYu

DouYu International Holdings Ltd (NASDAQ: DOYU) is another leading game live streaming platform. The company reported 158.1 million average monthly active users for the first quarter of 2020.

Together, DouYu and Huya arguably form a duopoly in China’s game live streaming sector.

Although the two compete against each other now, there is a possibility they might not in the future. Tencent has control of both and there has been speculation that the two might merge.

3. Tencent

Given Tencent Holdings Ltd (SEHK: 700) is one of the largest online game publishers in the world, it’s only natural that it has a presence in game live streaming.

Not only does Tencent have control of both Huya and DouYu but it also owns a sizable amount of both companies’ shares.

If Tencent merges the two, it could unlock synergies and better counter the emerging threat of ByteDance.

Lately, Tencent has also tried to enter into the game live streaming market in the West by launching Trovo Live, a site similar to Twitch.

4. Sea

Although Sea Ltd (NYSE: SE) is known for its leading Southeast Asian e-commerce platform, Shopee, Sea is also a esports leader in the region through its gaming business, Garena.

In addition to the live streaming of gameplay, Garena operates the largest mobile-gaming pro league in Taiwan, Southeast Asia, and Brazil. The business also organises hundreds of esports events annually.

The best way to play the trend

Of the four companies, Tencent is perhaps the best way to play the trend.

Tencent is arguably the most diversified as the tech conglomerate has a leading fintech business, a leading social media business, and is China’s second-largest cloud company.

Tencent is also profitable, well run, and its valuation is pretty fair given its growth potential.

Although Huya, DouYu, and Sea could have more upside if the market likes them or if management executes well, they could also have more downside because they aren’t arguably as strong as Tencent.

Foolish conclusion

With the increasing popularity of esports, demand for live streaming game platforms featuring esports stars has increased.

With the trend, Huya, DouYu, and Tencent each benefit in China and Sea Ltd benefits in Southeast Asia.