• Video Games and Esports

    Metaverse Gaming: Time for Investors to Play?

    John Patrick Lee, CFA, Product Manager
     

    What’s in store for investors in the video gaming industry in 2022? We review some of the major themes and companies that drove performance in 2021, both good and bad, and discuss potential breakout areas for 2022. In particular, we discuss why we believe mobile and metaverse gaming are the segments to watch this year.

    2021 Top Themes and Contributors from Mobile to Metaverse Gaming

    Semiconductor stocks with high exposure to gaming were the biggest contributors to positive performance in 2021. NVIDIA (9.1% weight) contributed over 7% to portfolio performance, and Advanced Micro Devices (7.7% weight) contributed approximately 3.8% to portfolio performance. High demand for semiconductors from a range of industries, combined with supply chain disruptions linked to the COVID-19 pandemic, have led to semiconductor stock outperformance in the past two years.

    Mobile and emerging markets-focused companies also helped to boost performance in 2021. Sea Limited (6.9% weight) contributed 1.9% to portfolio performance, as the company continued to enjoy the benefits of a massively popular mobile game focused solely on emerging markets consumers. Sea Limited announced the game had a record high of over 150 million daily active users in the second quarter of 2021. (source: Sea Limited Q2 2021 Results). Despite a primarily Chinese userbase, NetEase (5.2% weight) was also a top performer, contributing 0.7% to index performance.

    Metaverse-focused gaming companies came into focus in the second half of 2021; leading companies also boosted performance. Roblox (2.4% weight) and Unity (4.6% weight) each contributed approximately 0.7% to portfolio performance. Both companies went public relatively recently, and despite remaining unprofitable throughout the year, investors benefitted from their massive userbase (Roblox) and widespread use of development tools (Unity).

    Video Gaming Companies Performance Leaders
    Esports Graphic 1

    Source: Factset as of 31/12/2021. Returns reflect MVIS Global Video Gaming and eSports Index returns from 31/12/2020 - 31/12/2021. Past performance is not indicative of future results.

    2021 Bottom Themes and Detractors

    Companies dependent on Chinese gamers suffered in 2021. Nexon (3.9% weight) contributed the most to negative performance for 2021, down -37% and contributing -1.9% to the portfolio. Nexon obtains approximately 27% of its revenues from China, and the stock fell dramatically on fears the company would not be able to get new games approved in China. (source: Bloomberg News)

    Tencent (7.5% weight) contributed -1.6% to performance, and Bilibili (4.7% weight) contributed -1.5% to performance. Both companies are Chinese-based and suffered under the prospect of a more restrictive environment for Chinese internet and gaming companies.

    Other companies fell due to post-pandemic growth issues or because of idiosyncratic single-game risk. After a year of outstanding growth in 2020, Nintendo’s (5.7% weight) growth prospects fell in 2021, resulting in a year of negative stock returns. Nintendo fell -24.4% for the year and contributed -1.7% to the portfolio. Korean-based NCsoft (3.8% weight) contributed -1.7% to negative performance, after its much-anticipated “Blade & Soul 2” was released to poor critical and user-reviews.

    Video Gaming Companies Performance Detractors

    Esports Graphic 2

    Source: Factset as of 31/12/2021. Returns reflect MVIS Global Video Gaming and eSports Index returns from 31/12/2020 - 31/12/2021. Past performance is not indicative of future results.

    What’s in store for 2022?

    Mobile gaming will continue to dominate gaming revenues. According to Newzoo, mobile gaming accounted for more than 50% of gaming revenues in 2021, and that trend is expected to continue. We believe companies that focus on emerging markets mobile consumers (ex-China) will have longer growth runways than companies focused on non-mobile consumers in developed markets.

    M&A activity will continue at a high rate. In the last few years, M&A activity has been driven by the need to break into the mobile gaming space, or conglomerates positioning for the coming cloud wars. We expect these two driving forces to continue to drive M&A activity into the foreseeable future.

    Metaverse platforms and events continue their soft rollout. The metaverse hit the mainstream in 2021, with a Facebook rebrand and a massive spike in interest in what defines the metaverse, and how to invest in it. While a fully-realized metaverse is years away, we expect to see more companies devote resources to developing its potential.

    Crypto and digital assets become more integrated into traditional video gaming. Crypto gaming ecosystems exploded in popularity in 2021. Crypto gaming combines elements of gaming and finance, allowing players to earn crypto tokens by playing a game (also known as play-to-earn). Non-fungible tokens (NFTs) should also see more integration in 2022, and we expect a major game publisher to successfully launch an NFT ecosystem that can allow players to buy and sell their digital assets to others.

    Video Gaming and Esports: Taking Media and Entertainment to the Next Level

    Consider the VanEck Video Gaming and eSports UCITS ETF when positioning your portfolio to include video gaming and esports companies.

    • Video gaming and esports supported by global demographics trends and tech innovation
    • Mobile gaming, new business models and esports have helped propel industry to forefront of media and tech entertainment
    • Companies must derive at least 50% of total revenues from video gaming and/or esports to be initially eligible for the Index

    Please note the following risk factors: Equity Market Risk, Industry or Sector Concentration Risk, Risk of investing in smaller companies.

    VanEck Video Gaming and eSports UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is managed by VanEck Asset Management B.V., registered with the Central Bank of Ireland and tracks an equity index. The value of the ETF assets may fluctuate heavily as a result of the investment strategy. If the underlying index falls in value, the ETF will also lose value.

    Investors must read the sales prospectus and key investor information before investing in a fund. These are available in English and the KIIDs in certain other languages as applicable and can be obtained free of charge at www.vaneck.com, from the Management Company or from the local information agent details to be found on the website.

    MVIS®Global Video Gaming and eSports Index is the exclusive property of MVIS (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Video Gaming and eSports UCITS ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.


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  • Authored by

    John Patrick Lee, CFA
    Product Manager

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