The Future of Esports: Emerging Trends and Market Potential
The esports sector is experiencing significant growth and transformation, driven by evolving trends and increased investment. According to The Business Research Company, the global esports market was valued at $1.63 billion in 2023. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 16.4% during 2024-2028 to reach $3.48 billion by ?the end of the forecast period.
Technological advancements continue to shape the future of esports. The integration of generative AI in gaming is creating more immersive experiences, while cloud gaming continues to gain traction. As these technologies evolve, they are expected to enhance player engagement and expand the esports audience.
Another key trend is the rise of live streaming. This also offers exciting avenues for both content creators and advertisers looking to connect with a dynamic audience. Comscore's 2024 State of Gaming Report revealed that gamers spent 45 billion hours on online video content in 2023.
Esports and live streaming are gaining traction, particularly among younger generations. The report shows that about 86% of Gen Z and 80% of Millennials who are aware of esports have watched it. Additionally, 53% of Gen Z and 61% of Millennials have engaged with live streaming. The report also highlights that 79% of viewers prefer watching esports with others. This indicates the social nature of esports.
The rise of platforms like Twitch and YouTube Gaming has made esports more accessible, further fueling interest and participation.
Additionally, the Middle East is emerging as a significant market for esports, thanks to initiatives like Saudi Arabia's Vision 2030, which aims to diversify the country’s economy. Major events, such as the Esports World Cup held in Riyadh, have drawn thousands of participants and substantial prize pools, showcasing the region's potential. Here’s a short excerpt from our previous article “7 Best Gaming Stocks To Buy Now” that discusses this in more detail:
“In July and August, the first-ever Esports World Cup took place in Riyadh, Saudi Arabia, attracting over 1,500 players and offering a massive prize pool of $60 million. The event spanned eight weeks and included 23 competitions across 22 different video games, such as Call of Duty and Fortnite.”
Overall, the esports sector is poised for continued growth. As organizations adapt to new market dynamics and leverage innovative technologies, the future looks promising for investors interested in this vibrant industry.
Methodology
To compile our list of the 8 best esports stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the largest gaming and esports companies. We also reviewed our own rankings and consulted various online resources. We carefully verified our list to remove any companies that can not be classified as esports stocks. Next, from an initial pool of more than 20 esports stocks, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 best esports stocks to buy are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A person livestreaming their gameplay on a mobile device with integrated payment options.
Sea Limited (NYSE:SE), based in Singapore, is a leading technology conglomerate with a strong foothold in the esports industry through its gaming division, Garena. It is recognized as one of the most valuable esports companies globally, primarily due to its popular mobile game, Free Fire. This title has garnered immense popularity, making it one of the top mobile battle royale games worldwide.
The company not only develops and publishes games but also organizes esports events on a global scale. Sea Limited’s (NYSE:SE) Garena division hosts competitions ranging from local grassroots tournaments to major professional events. A highlight was the Free Fire World Series 2021 in Singapore, which set a record with 5.4 million concurrent viewers.
In its second quarter of 2024, Sea Limited (NYSE:SE) reported impressive growth in its gaming and digital entertainment segment. The company achieved over 20% year-on-year growth in bookings, largely driven by Free Fire's success. Sea Limited (NYSE:SE) reported that Free Fire had more than 100 million daily active users throughout the second quarter of 2024. Additionally, Free Fire was recognized as the most downloaded mobile game worldwide in Q2 2024 according to Sensor Tower.
The company is also expanding its gaming portfolio with the upcoming launch of Need for Speed: Mobile in Taiwan, Hong Kong, and Macau, in collaboration with Tencent and Electronic Arts. This expansion aims to engage its dedicated gaming community further.
The company’s digital entertainment segment reported bookings of $537 million in Q2 2024, reflecting a 21% increase from the same quarter in the previous year. The total number of active users rose to 648 million, up 19% year-over-year, while paying users reached 52.5 million, marking a growth of 21.7%.
In addition to its gaming and entertainment division, Sea Limited (NYSE:SE) operates Shopee, one of the largest e-commerce platforms in Southeast Asia and Taiwan, and SeaMoney, which provides digital financial services. This diversified business model allows the company to reduce reliance on any single area while benefiting from multiple revenue streams across gaming, e-commerce, and finance.
Overall, Sea Limited (NYSE:SE) generated total revenues of $3.8 billion in Q2 2024, a 23% increase compared to Q2 2023. The company also reported a gross profit of $1.6 billion and had $9 billion in cash and investments as of June 30, indicating strong financial health.
According to Insider Monkey’s Q2 2024 database, 63 hedge funds held stakes in Sea Limited (NYSE:SE). It ranks second on our list of the best esports stocks to buy according to hedge funds. Artisan Partners stated the following regarding Sea Limited (NYSE:SE) in its “Artisan Developing World Fund” third quarter 2024 investor letter:
“Top contributors to performance for the quarter included Southeast Asian e-commerce leader Sea Limited (NYSE:SE). Sea rose due to an improved competitive environment in its Shopee e-commerce business that set the stage for commission increases, while a positive inflection in its gaming business surprised market participants.”
Overall SE ranks 2nd among the best esports stocks to buy according to hedge funds. While we acknowledge the potential of SE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
