After a run of bullishness forged against the backdrop of coronavirus shutdowns, video game stocks slumped in 2022. They’re rebounding this year as highlighted by year-to-date of nearly 22% by the VanEck Video Gaming and eSports ETF (ESPO ).
ESPO, which turns five years old in October, follows the MVIS Global Video Gaming and eSports Index. Even with this year’s impressive resurgence, some of the exchange traded fund’s marquee holdings are still attractive on valuation. This indicates investors aren’t paying up to access ESPO’s growth prospects.
That group includes NetEase (NTES) – one of the largest mobile gaming enterprises in gaming-crazy China. The stock accounts for 6.30% of the ESPO roster.
“NetEase has now become the second-largest mobile game company in the world. The firm owns one of the most well-known massively multiplayer franchises in China, Fantasy Westward Journey. Over the past decade, NetEase has capitalized on the industry shift toward mobile and now focuses on a mobile-first approach to developing innovative, high-quality, long-cycle games,” noted Morningstar analyst Ivan Su.
Other ESPO Bargains
In other good news for ESPO investors, Electronic Arts (EA), the producer behind the venerable FIFA, Madden, and Battlefield franchises, is also viewed as attractively valued. That amounts to good timing when considering budding enthusiasm for soccer. Plus, the 2023 NFL season kicks off on September 7.
“Like its peers, EA has benefited from the shift within the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller independent games on the other,” observes Morningstar analyst Neil Macker.
EA is ESPO’s seventh-largest holding at a weight of 4.85%. The ETF’s sixth-largest holding at a weight of 6% is Nintendo (NTDOY). The Japanese gaming firm produces consoles and portable gaming devices. But it also publishes some of the most revered titles in the industry, including Super Mario Bros., Pokemon, The Legend of Zelda, Mario Kart, and Animal Crossing.
In particular, Super Mario Bros., Pokemon, and Zelda make for excellent cross-marketing opportunities as highlighted by collectors’ enthusiasm for Pokemon cards and the success of the recent Super Mario Bros. movie.
“We believe Nintendo’s fans will increase as people are able to enjoy its characters across various media, and that the success of the Switch proves the company can attract new fans by leveraging its characters and preparing an attractive game pipeline,” wrote Morningstar’s Kazunori Ito. “Future challenges include monetizing its characters efficiently in its non-console business, its re-entry to the greater China market, and adapting to the diffusion of cloud gaming. We nevertheless believe the company’s ability to deliver fun games is intact.”
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