Video Gaming Industry Warming Up: Play These ETFs

The video gaming industry may have underperformed the broader market in 2018, but it started this year with zest. Big gaming franchises that require players to pay upfront appeared wary of threats from free-to-play games like "Fortnite.” In the recently-released earnings results, game publishers like Take-Two Interactive Software Inc. (NASDAQ:TTWO) and Electronics Arts Inc. (NASDAQ:EA) posted disappointing numbers as they were supposedly pressured by the competition from free-to-play games (read: Video Gaming Stocks in Red, Are ETFs Relatively Safe?).

But some analysts are still optimistic. Per Robert Berg of Berenberg, Fortnite’s growth momentum appears to be waning, which could augur well for other operators.Goldman analyst Michael Ng also sees immense potential in the space. The global gaming market is as big as $135 billion and is growing at a high-single-digit pace including console, PC and mobile revenues.

The segment has been gradually transforming to online from offline. Goldman believes that eSports, mobile gaming, subscription models, streaming services and significant penetration into the Chinese market will act as long-term drivers for the industry. After all, the U.S. video game industry recorded an 18% year-over-year uptick in revenues last year, according to research firm NPD Group.

Google to Launch Streaming Platform Stadia

Big names are increasingly joining the space. Alphabet Inc. (NASDAQ:GOOGL) plans to launch a streaming platform called Stadia in order to transform the multi-billion-dollar video game industry. Stadia will be a cloud-based service that will let users play games across devices operating on Google's Chrome browser and Chrome operating system.

All you need to have is an Internet connection. It will be like streaming shows and movies on Netflix (NASDAQ:NFLX) . YouTube, another platform owned by Alphabet, will also have the 'Play Now'button.

Not only Google, Microsoft Corp. (NASDAQ:MSFT) is also eyeing to grab a sizable slice of the video industry pie with its Azure cloud platform. In mid-March, Microsoft revealed Game Stack, a suite of development tools specifically designed for the video game market. The bundle combines services from Azure with other Microsoft products, “including a heavilyupgraded version of the PlayFab platform that the technology giant acquired last year.”

Some analysts see higher chances of mergers and acquisitions in the space. “The likes of Google, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), or others will need to gain their own content in order to compete. This could be using exclusivity agreements, or through outright M&A,” per Macquarie analyst Benjamin Schacter.

ETFs in Detail

Against this backdrop, one must take a look at the below-mentioned video gaming as well as cloud ETFs.

ETFMG Video Game Tech ETF GAMR — Up 13.0% YTD

GAMR tracks the EEFund Video Game Tech Index, which follows companies actively involved in the electronic gaming industry, including the entertainment, education and simulation segments. The 78-stock fund has exposure to the afore-mentioned stocks but none of the stocks account for more than 3.21% of the fund. It charges 75 bps in fees.

VanEck Vectors Video Gaming and eSports ETF ESPO — Up 15.7% YTD

The fund ESPO follows the MVIS Global Video Gaming and eSports Index, which intends to track the overall performance of companies involved in video game development, eSports, and related hardware and software. The 25-stock fund charges 55 bps in fees (read: Capture the eSports Craze with this ETF).

First Trust ISE Cloud Computing Index Fund SKYY— Up 19.3% YTD

The underlying ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. It charges 60 bps in fees.

AdvisorShares SabreTooth ETF BKCH — Up 7.9% Since Inception on Feb 6, 2019

This ETF is active and does not track a benchmark. Amazon.Com, Mongodb and Arista Networks are the top three stocks of the fund as of Mar 19, 2019. The fund charges 85 bps in fees (read: Cloud Computing ETF Space Gets Crowded).

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