Gaming Stocks

Investment trend gaming stocks: eSports, iGaming & Co.

Gaming was ridiculed for decades. Games for PCs and consoles were considered more as gimmicks that alienated computers from their intended purpose. At the latest since ball games electrified politics, another cliché was added: games glorify violence. In recent years a rethinking process has begun. Consumers (especially parents) and investors are beginning to realize that there is more behind the games. In what form do traders do business with games – whether for console or PC? Gaming shares have many faces. Sometimes there are nuances that nobody has thought about before.

Gaming stocks: What can be traded

Let’s start with one thing: The term gaming is conclusively defined in Germany. A fact which makes it difficult to distinguish gaming shares from other securities. On the one hand, it is necessary to clarify what the term actually covers. On the other hand, it is significant that gaming can be quite broadly defined in practice.

Gaming in the true sense of the word is an area that deals with PC and console games. In other words, it’s all about blockbusters and triple-A titles. How can investors invest capital in this investment segment? The first option: specializing in publishers and software companies that have meanwhile made the leap to the stock market. But there are several other options to make money through the right securities with the boom in games.

Direct investments in the shares of the game developers are in the end only one possible way. Also about the technology offers you the possibility to cut a piece off from the boom. Background: In the past, gaming has become an important driving force behind the development of hard drives, graphics cards and monitors. Gaming is never solely responsible for progress. But: The hunger of many gamers for better graphics, better gameplay and short loading times is an incentive for many companies.

But gaming – playing on the PC or smartphone – touches on other areas as well. Especially under the term iGaming a branch has become known that polarizes. And yet, over the years, it continues to achieve new user and sales records. The talk is of iGaming. This is about online gambling, which has not been in the hands of a few windy businessmen for a long time. iGaming has become a trend that competes with land-based casinos. It’s about billions of dollars that are turned over – by entertainment groups that are now listed on the stock exchange.

Generating returns with gaming shares: An overview

  • Software producers and developers
  • Software Engine Support
  • Gaming Hardware
  • iGaming.

Game Developers: Investing via stocks & crowdfunding

For investors who have an eye on the gaming industry, the obvious thing to do is to invest in shares of various development studios and publishers. This distinction is important because the gaming industry (in the software segment) is usually very strictly divided into those players who develop and program the games and companies that take care of sales and marketing.

Examples of some well-known developer studios are

  • Naughty Dog (Last of Us series or Uncharted)
  • Riot Games (Valorant)
  • 505 Games (Death Stranding).

Publishers are companies that are more likely to be seen as marketers. They have built up a very complex sales structure in the meantime – such as multi- and cross-channel marketing. Publishers take a lot of work off the developers by working with large distribution platforms. Publishers also have a lot of experience in marketing. On the other hand, the marketers have a say – for example, with regard to the release. Unfortunately, this can lead to certain conflicts of interest.

Large publishers are for example Sony, Microsoft or Ubisoft and Take2 Interactive. Together these four marketers have some of the most famous Triple A games and gaming series under “contract”, including Assassins Creed, Red Dead Redemption or Forza etc.

Especially the publishers – in contrast to the developers – have now reached a significance and size that they are traded on the stock exchange. Example Take2 Interactive: The publisher of Red Dead Redemption is listed on the NASDAQ. But you will also find the shares of the French marketer Ubisoft on the stock exchange. Their shares are a very direct way to invest in gaming. Considering the historical development of some of the securities, it is understandable why gaming is not only of interest to die-hard players. Ubisoft, for example, has around 100 euros between its low and high over the last 10 years.

As an investor, you invest in the gaming industry not only through stocks. Especially independent studios and smaller developers often rely on crowdfunding. Kickstarter is particularly popular at this point. But: Through crowdlending you can lend money to developers. If the games become a hit, there is a return for you. Make it clear here where the risk lies. In Crowdfundig there is the danger that you will have to write off money.

Graphics engine and rendering: bet on the “periphery

Shares of developers and publishers are one side of the coin. Have you experienced a PC or console game yourself? Right at the beginning all used trademarks and engines are marked. Examples are the Unreal Engine, Unity or the Crytek Engine. There is a simple principle behind them: Some companies develop programming environments which are used, for example, for rendering the game graphics.

This is not only used in their own games, but also by a wide range of developers. A license fee is charged for its use. A quite common pattern. Through the engine, the companies become partly better known than through their games – and thus generate a significantly higher turnover. If these companies have dared to go public, you can trade these securities without any problems.

Hardware manufacturers: Games accelerate the industry

Some companies laymen did not know 20 years ago. Intel and AMD were already known. But Nvidia or Palit – here only a few traders knew what it was all about. Today both are hardware manufacturers that no gamer can get past. Nvidia focuses on graphics cards and the development and production of chips. Palit is a manufacturer of high-quality graphics cards. Among other things, overclocked models belong to the product range. But both are only two examples.

Especially in the field of hard disks and mainboards for the CPU, some “big players” have established themselves. Examples are:

  • Seagate
  • MSI
  • Corsair
  • Asus etc.

In the meantime, the groups and companies have grown so much that they have made the leap to the stock market – and can be held in your portfolio as a workaround for gaming stocks, so to speak.

At the same time, gaming – and the demand for more and more performance and better graphics – continues to drive the development of new standards. The fact that the industry is booming is sometimes, but not always, attributable solely to the players. For example, Nvidia and AMD have experienced a massive surge in demand between 2017 and 2019. However, this was not caused by gamers, but by the mining of crypto currencies. The latter were partly calculated particularly efficiently with the GPU (central processing unit of the graphics card).

iGaming: Returns thanks to gambling

The stock exchange is a casino, in which many investors have already gambled themselves thoroughly. In view of the turbulences, which again and again cost billions, a quite obvious suspicion. So that your portfolio does not suffer in the same way, all-in is guaranteed to be the worst option. But: You may well bet on gambling in order to achieve an appropriate return. Background: iGaming – i.e. sports betting and online casinos – are a booming industry.

With the increasing number of users, the makers of casinos are creating an ever greater reach. And thus achieve sales at dizzying heights. What many investors do not know at first: In recent years, the industry has undergone extreme consolidation. Online casinos, which entered the business at the end of the 1990s, have developed into stock corporations. Through acquisitions, their position has become stronger in recent years. Betsson or the 888 Holdings are just two examples.

Those interested in gaming can also take a look here. But: In this context, it is not enough to deal only with technical analysis. In gaming, fundamental data is extremely important.

FUNDAMENTAL DATA: POOR RELEASE AND NEW REGULATION

Fundamental data can be balance sheets of individual stock corporations. Very often, however, it is simply a matter of market performance. Do the numbers of players (for whatever reason) break down? Particularly in the case of PC and console games, the release of a single title can put the share price under massive pressure. The more eagerly the release of a game is expected, the greater the disappointment can be.

In addition to the criticism of many gaming experts and magazines, a shitstorm of users usually breaks out over the publishers. An extremely good release can of course turn the situation into the opposite.

On the other hand, we experience time and again that political issues influence the share prices of iGaming companies. The best example is Germany with its still quite strict legislation. If the implementation of the new gambling laws is successful, this may well have a positive effect on the performance of the shares in the portfolio.

Invest in gaming: Share, funds or CFDs

As an investor, you can put a whole range of shares from the gaming and gambling sector into your own securities account. But does it always have to be a share that you bet on at this point? In practice, there are certainly other options available – such as:

  • Funds
  • ETFs
  • derivatives.

Derivatives include CFDs or futures and certificates. In the end, which is the best option for you as an investor? In practice, it is difficult to simply make a general recommendation.

The reason: each asset class has its advantages and disadvantages. And therefore fit differently into your personal investment strategy. The topic of shares as a direct investment has a great advantage: they can be perfectly integrated into a buy-and-hold strategy. In this context, gaming shares play the dividend as a passive inflow of funds a plus point. Example Sony: manufacturer of the PlayStation and publisher, the group has always paid its investors an increasing dividend per share in recent years.

But: No investor can rely on these payments. Unfortunately, it happens again and again that eagerly awaited games flop – and fall short of expectations in terms of sales figures. Since the production costs of the Triple-A titles in particular are now almost comparable to those of films, such “misinvestments” tear holes in the coffers of developers and publishers alike.

Similarly critical considerations apply to the hardware companies as well. A dividend is not in any case possible. A simple example: AMD has not paid dividends to its shareholders in the past years. The situation at Intel is completely different. Here, dividend payments have grown almost continuously over the last 10 years.

FUND WITH GAMING SHARES

How do funds and shares fit together? The answer is actually quite simple: very good. At this point, unfortunately, we have to dampen our euphoria a bit. Pure gaming shares – i.e. the game developer – only play a limited role here. It’s different with hardware companies. Here, the equipment for gamers is usually only a partial area. Cloud or business solutions are a strong stimulus for business. The best example is Intel. The tech giant is now not only found in actively managed funds. As an investor you can also look for ETFs in which the value is represented.

Index funds, which are often in ETFs, have an advantage. Compared to a classic equity fund, they are usually much cheaper in terms of the management fee. In addition, an ETF reflects well-known indices that contain a whole range of values that show very low volatility. Strong fluctuations of a security are thus “captured”. What many investors also appreciate: ETFs can be packed into savings plans. Here, assets are built up with a small monthly sum. In this way, the so-called average cost effect is created. As soon as prices on the stock exchanges fall and other traders panic to sell, you continue to save on the ETF – and buy more shares. If the counter-trend sets in, your portfolio will move forward by one percentage point in value.

On the other hand, the whole thing has a disadvantage: If one of the gaming stocks performs very well, this effect is more strongly offset than would perhaps be the case with a direct investment in the portfolio. Caution: ETFs are not a 100% bank in times of crisis either. As an investor, you must always take losses into account.

CFDS: GAMING SHARES OF SPECULATIVE TRADES

CFDs (or Contract for Difference) are to be found also as difference contracts in the investor speech meanwhile very often. As an investment construct, the whole thing is based on the following basic idea: You do not trade a security directly, but always only on its price change. In this way, the investor does not have to own the security. In addition a trade is often possible with clearly smaller assets than in the comparison to the direct investment.

Especially in the area of short to ultra short-term investments the CFD has established itself and is a very speculative financial instrument. By the way, CFDs are not traded 1:1 and contracts for differences are always based on the possibility of using leverage.

Its amount varies with the asset class. Stocks are traded with a leverage of 5:1 in the CFDs range. When betting on indices, the leverage varies between 20:1 and 10:1, depending on whether it is a secondary or primary value. What does the leverage provide? As a trader, you move a higher sum on the market – in other words, you increase your profit. The problem: A CFD also leverages the loss that you incur with a position at the end.

By trading CFDs you do not only have to know the risk. You must be aware that every broker requires a margin as security. Only when you put up the margin will the trading platform keep positions open. If this is no longer possible, a margin call is triggered and the position is closed at the end.

Broker comparison: Best brokers for gaming stocks

To earn money with gaming shares, you don’t just need the “right nose”. The selection of the right broker is crucial. Several factors are involved here – such as the selection of asset classes, trading costs or customer service and the trading platform.

ASSET CLASSES AND STOCK MARKETS

One of the important aspects in the broker comparison is the choice of trading types such as shares, currencies or commodities and derivatives. In practice, it is clear that brokers usually do not cover the entire spectrum. Brokers who focus more on stocks, bonds or savings plans often exclude derivatives. On the other hand, direct investments with brokers specialized in CFDs and FX stocks are rather rare.

COSTS FOR TRADING

The costs are an essential point. On the one hand, there are the custody account costs, on the other hand the actual trading fees. The latter are based for the direct Gaming share trade on Flatrate or commission model. In the context of the CFDs it concerns the Spread – thus the difference between purchase and selling price.

ALWAYS CHECK THE TRADING PLATFORM

Brokers work with different platforms for trading. Some of these are developed externally. A well-known example is MetaTrader. Some brokers have developed their own platform. In a direct comparison, the question is how well the platform performs in terms of performance. Decisive are the possibilities for customizing the chart display, which indicators are available and which orders can be placed via the platform.

CUSTOMER SERVICE AND HELP CENTER

Questions about the function of the platform or the checkout area can always arise. Here in the Broker Test we are interested in how well the customer service can be reached. It is no longer enough to rely solely on e-mail. What is absolutely necessary is a direct channel – via chat or hotline. In the Help Center, what counts is a comprehensive FAQ, which offers you as an investor real added value.

Conclusion: gaming shares fit into many investment portfolios

Gaming has outgrown its infancy in recent years. With the growing interest of gamers, the hardware has also developed accordingly. These are rosy times for publishers and tech companies. Investors can take a leaf out of their book – with the right shares. In addition to large publishers with Triple A titles, securities of hardware manufacturers also fit into the investment portfolio of many investors.

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