Why You Should Consider Buying $NERD - Roundhill BITKRAFT Esports & Digital Entertainment ETF

Esports is a huge industry and is only forecasted to continue rapidly growing in the coming years both in terms of viewership and revenue. While there is not a whole lot of esports ETF’s out there, what makes $NERD ETF stand out is its low expense ratio, and its higher stake in growth stocks such as $HUYA and $EGLX, as well as China-based companies. To top it off, it has a high annual dividend yield of 1.07%.

What is Esports?

Electronic sports (esports) is an industry where skilled video gamers play competitively. Esports encompasses competitions across a variety of video games such as Fortnite, League of Legends, Call of Duty, Overwatch and many more. These gamers are watched and followed by millions of fans across the world who either watch live online or on TV. An interesting fact is that more people actually watched the 2016 world finals of League of Legends (43M viewers) than the NBA Finals Game 7 that year (31M viewers).

An Overview of NERD, The Esports & Digital Entertainment ETF

The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE:$NERD) “tracks a tier-weighted index of global companies that are actively involved in the esports and other digital entertainment industries” involving video game publishing, development, streaming, leagues and tournaments and gaming hardware and technology. The total value of assets under management for $NERD is $93.2M.

Top Holdings (Ticker, $NERD ETF Exposure):

Huya Inc (NYSE:$HUYA, 5.5%) – China-based holding company engaged in the operation of game live streaming platforms. Their game content includes gameplay, esports tournament events and other esports game shows.

Market Cap: $3.63B
Key Statistic: As of August 2020, Huya Live averaged 168.5M monthly active users; 6.2M being paid users.

Modern Times Group (STO: $MTG-B, 5.1%) – A Swedish-based entertainment company operating in esports and gaming and providing experiences through live events, pro leagues and international tournaments all available to follow live online and on TV.

Market Cap: $8.67B
Key Highlight: ESL Gaming, is Modern Time’s esports company, and happens to be the world’s largest esports company.

Tencent Holdings (OTCMKTS: $TCEHY, 5.1%) – A China-based investment company heavily involved in talent and technology innovation. Most notable investments include Riot Games (League of Legends) with 100% stake, Epic Games (Fortnite) with a 40% stake and Bluehole (PUBG) with an 11.5% stake. Other investments worth noting are Supercell (Clash of Clans) with 84.3% stakes and also being an investor of growing messaging software Discord.

Market Cap: $682.8B
Recent Highlight: Tencent will buy the British videogame developer Sumo in a $1.27B deal which will add new titles to their growing portfolio and further expand their global presence.

Activision Blizzard (NASDAQ: $ATVI , 5.0%) – This company was the first independent video game software developer and distributor in 1979 and has since created some of the most iconic and memorable game experiences of all time. They operate on various gaming platforms such as console, PC and mobile through their many segments. Some of their most notable games include the Call of Duty series, Overwatch, World of Warcraft and Candy Crush Saga.

Market Cap: $71.33B
Key Highlight: On a monthly basis, they engage approx. 400M players across their network and have full plans to double and accelerate their path to 1B players.
“I believe esports will rival the biggest traditional sports leagues in terms of future opportunities, and between advertising, ticket sales, licensing, sponsorships and merchandising, there are tremendous growth areas for this industry” – Steve Borenstein, Chairman of Activision Blizzard’s Esports Division and Former CEO of ESPN and NFL Network

Corsair Gaming (NASDAQ: $CRSR, 4.8%) – A leading global provider and innovator of high-performance gear for gamers by helping them perform at their peak and for content creators to produce studio-quality content. Being in the market for over 2 decades now, they have capitalized on customer loyalty due to their brand authenticity and reputation of finely engineered products that deliver an uncompromising level of performance.

Market Cap: $2.69B

What’s the Market Opportunity like for Esports?

Audience Expansion and Viewership

Total esports viewership is expected to grow from $454M to $646M, a 9% CAGR between 2019 and 2023 or a 10.3% CAGR from 2018-2023 (as depicted in the chart below)
Rising viewership on online platforms such as Twitch and YouTube with approx. 1.13M active streamers in 2018 alone
- The esports viewers spent 17.9M hours watching their gaming streamers in the 1Q2018
As per SuperData, more people were reported to watch gaming more than HBO, Netflix, ESPN and Hulu combined
Esports enthusiasts are defined as people who watch professional esports content more than once a month and occasional viewers watch less than that
Users are engaging for 51 minutes daily and are now more engaging than any social media outlet like Facebook, Snapchat or Instagram
It might be soon when we’ll see esports viewership overtake traditional sports viewership

Games Growth

The global games market is expected to grow to $200B by 2023 with revenues increasing at 9%+ per year
The overall esports market is expected to grow at CAGR of 20% during the forecast period of 2021-2026

China as the Leading Country in Esports

As the largest esports market in the world, China is really capitalizing on the emerging industry. In 2020 alone, the Chinese esports market generated US$85M and was estimated to grow at a CAGR of 17% until 2023. The metrics tell us that revenues generated by the Chinese market alone are 35% of total estimates for the global esports industry.

Some key trends that are helping to shape the Chinese esports landscape are:

Esports is centrally promoted and encouraged with strong government backing.
- China has called on its tech giants such as Tencent to further support and invest in the cause
Esports is uniquely linked to China’s culture and customs.
- With over 26% of internet users watching esports monthly, this stat is more than double the level in the U.S
- Internet cafes have played a crucial role in the development of esports early only in the 2000s
Esports is highly driven by tech empires
- Strong government support and domestic tech giants such as Tencent has seen significant growth of investments in domestic games and western esports properties

What to Look Out for:

In 2022, esports is expected to be an official medal event in the Asian Games which will be hosted in Hangzhou China
14 esports facilities are expected to be finished by the end of this year for Hangzhou China, and is expected to make the city an esports capital of the world
Given that 2 of $NERD’s top holdings is based in China, I think the news and its future prospect will greatly benefit the 2 companies and have a direct impact on the ETF

Final Thoughts on Why NERD is a Solid Gaming ETF Investment

The statistics above really showcase the rapid growth of esports to come which I think has been amplified due to the COVID-19 pandemic that has seen viewers and new audiences spend more time than ever at home. The pop-culturalization and growing awareness of esports will only drive viewership growth and contribute to revenue growth in the industry. From an investment perspective, while esports is competitive gaming, it is ultimately a digital media and investment opportunity which is what $NERD ETF encompasses.

Sources:

Modern Times Group Overview

Tencent’s Investments

Activision Company Overview

Corsair Company Overview

Esports Market Trends (CNN)

Esports Market Report (Business Insider)

Esports Market Research

Esports 101 by Roundhill

China and Esports Trends

China and Esports