Dan Chung: eSports Rush Ahead
November 28, 2018​
Video games are more than child’s play these days. Even if you haven’t picked up a video game since the original Super Mario Bros., you have probably heard of the growing eSports industry. As its name—derived from “electronic sports”—suggests, eSports entails playing video games competitively at a professional level. Just like traditional sports, eSports can be played in teams or player against player. Additionally, many gamers are interested in playing and watching these games, as with traditional sports. Spectators are so drawn to these games that they pay to watch live eSports events in person. In fact, tournaments have sold out 20,000-seat stadiums and have generated millions of online spectators as teams square off for prize pools that can reach $1 million.

​We believe massive growth potential for the eSports industry lies ahead. According to data from Newzoo, 2.3 billion gamers worldwide will spend about $137.9 billion on games this year. Epic Games, developer of the video game Fortnite, announced that over 125 million people​ were playing the game less than a year after launch. Thanks to Fortnite’s popularity, Epic Games recently launched a six-week Fortnite tournament with players competing for a $10 million prize pool.

Platforms that stream live gaming have also become major industry players. There are already 380 million global eSports viewers that rely on streaming platforms and this number is estimated to reach 557 million viewers by 2021. In the U.S., 58% of Americans ages 14-21 already watch eSports. Popular eSports streaming platform Twitch streamed a whopping 5.9 billion hours last year, up more than 20% year over year.

Although the eSports industry is in its nascent years, it has already been successful in using advertisements, subscription sales and broadcast deals to monetize video games and tournaments. In that regard, we believe eSports is further along than other emerging industries, such as augmented or virtual reality. Annual eSports revenue is expected to grow 38% to $906 million this year and reach $1.65 billion in 2021. ​

At Alger we’re excited about the opportunities that lie ahead. We believe there will eventually be a league for every popular video game that draws spectators. The companies that control the intellectual property will subsequently control eSports leagues, thereby amplifying each game’s popularity and revenues. These companies may provide promising investment opportunities as they are the main beneficiaries of the industry’s rapid growth. Large streaming platforms are also quickly becoming industry heavyweights, with their success advancing alongside the expanding eSports audience. As avid supporters of new, disruptive innovation and technology, our team of analysts and portfolio managers is keeping an eager eye on this rapidly expanding industry.

Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. The views expressed are the views of Fred Alger Management, Inc. as of November 2018. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategies managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities.  Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities.

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The following positions represented the noted percentages of Alger’s assets under management as of October 31, 2018: Amazon.com, 6.2%; Alphabet Inc., 4.2%; Apple Inc., 4.1%; Automatic Data Processing, Inc., 0.3%; Visa, 3.9%; Ultimate Software Group, Inc., 0.1%; Paylocity Holding Corporation, 0.2%; Paycom Software, Inc., 0.2%; WageWorks, Inc., 0.3%; Ceridian, (0.0%); Paycheck, (0.0%); Q2 Holdings, Inc., 0.1%; IBM, (0.0%); Oracle; (0.0%); and Ellie Mae, Inc., 0.1%.​

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