2 Top Stocks to Invest in Esports

Esports rose to prominence in 2018 with the launch of Activision Blizzard‘s Overwatch League. Before then, professional gaming didn’t get much attention outside of dedicated esports fans. But the big game companies are starting to provide the financial backing that esports have sorely lacked in the past, and this bodes well for continued growth of this burgeoning market…

One estimate puts the total value of esports, including money generated from advertising, sponsorships, and media rights, at $1.1 billion this year. Newzoo expects the market to grow 15.7% in 2020.

Activision might seem like a top choice to invest in esports, but the problem is that esports revenue is tiny compared to Activision’s more than $6 billion in annual revenue. You can get more bang for your buck by considering the companies broadcasting tournaments through live streaming platforms. Huya (NYSE:HUYA) and DouYu International Holdings (NASDAQ:DOYU) operate two of the largest game-streaming services in China, a hotbed for online gaming, and these companies provide plenty of growth.

Here’s why China’s Huya and DouYu are good options to consider if you want to invest in the growth of esports.

1. Huya

It’s estimated that 260 million people watched live game-streaming content in China in 2019. The total base of users in China that watched all live-streaming content, not just games, reached 560 million in March.

Huya ended the first quarter with total average monthly active users of 151.3 million for an increase of 22.2% year over year. Huya attracts these users with a variety of non-gaming content, but its primary offering has been game streaming and live broadcasts of esports tournaments.

Huya and DouYu are the “Twitch of China.” These companies make most of their revenue through purchases of virtual gifts made by users as they watch their favorite personalities play games (similar to how Amazon‘s Twitch operates). In 2019, Huya had 680,000 active broadcasters on its platform. Huya and DouYu also generate a small amount of revenue each year from advertising.

To attract more users, Huya self-organized 120 esports tournaments and game events last year. It also maintains partnerships with the biggest publishers of the most popular esports titles to secure the rights to broadcast exclusive esports content on its platform.

Despite the closure of internet cafes during the quarter over COVID-19, Huya still posted stellar growth of 47.8% in revenue year over year. Non-GAAP net income doubled year over year to $37 million. Live-streaming revenue increased by 46.5% to $321 million, driven by sales of virtual gifts.

What was most impressive was that advertising revenue increased by 74% to $19.4 million. The advertising market in China has been soft due to challenging economic conditions. Ad spending in China is expected to grow just 8.4% this year, according to eMarketer.

Huya’s advertising growth in this environment speaks to the value and appeal of its digital gaming content, which bodes well for continued growth even in a challenging economy. Management’s guidance calls for revenue growth between 29.3% and 30.8% for the second quarter.

The stock is trading at only 26% above its IPO price in 2018 and sports a forward P/E of 29. That looks very appealing for a high-growth company.

2. DouYu

DouYu grew slightly faster than Huya in the first quarter, with revenue up 53% year over year to reach $321.1 million. Net income improved to 254.5 million yuan ($35.9 million), up from 18.2 million yuan in the year-ago quarter. Live-streaming revenue increased 56%, while advertising revenue grew 22.2%, which management credited to its “improving brand awareness and the corresponding increase in demand from game advertisers.”

DouYu’s average monthly active users fell slightly to…

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