Gaming Evolution Might Be Excellent for ESPO
Owing to their status as growth stocks and members of the communication services sector, video game stocks are struggling this year.
In brighter news, this could be the ideal time for investors to consider related exchange traded funds, namely the VanEck Vectors Video Gaming and eSports ETF (ESPO B-). ESPO, which tracks the MVIS Global Video Gaming and eSports Index, is a diverse approach to the video game space, featuring ties to traditional gaming as well as next-generation concepts with potentially compelling growth trajectories.
In that latter category resides play-to-earn games (P2E) — a still nascent concept that could provide ESPO investors with credible inroads to the burgeoning metaverse investment thesis. P2E differs dramatically from the current video game model, which solely benefits game publishers and hardware makers.
“In P2E, the benefits flow both ways. The publisher/project makes money when players buy into the game by purchasing game assets (usually in the form of NFTs or non-fungible tokens),” according to VanEck research. “In this scenario, the player can sell his assets to others on an open marketplace, potentially at a profit. The player can also earn digital assets, like tokens, by playing or participating in the game itself. Ownership of some assets gives the owner the right to receive new assets if and when they are brought to market. Finally, P2E communities tend to be much more highly engaged than the traditional video game communities.”
The $319.4 million ESPO is home to 25 stocks, several of which are relevant in the P2E landscape. Those names include China’s Tencent, Roblox (RBLX), and Sea Ltd. (SE), among others. That trio combines for about 18% of the ESPO roster, according to VanEck data.
“P2E games are having an ever-expansive role in the Metaverse as they bring their communities into the Web3 world and connect their own ecosystems to an open, interoperable ecosystem,” added VanEck. “The most popular games in the world, whether it’s World of Warcraft, Call of Duty, or Fortnite, are closed systems (aka walled gardens). Within a walled garden, gamers do not enjoy true ownership of any of their assets or purchases. An asset or skin bought in Fortnite cannot be transferred to Call of Duty or World of Warcraft. These assets are specific to a single game!”
While the marriage of non-fungible tokens (NFTs), which are foundations in P2E, and traditional gaming has room to grow, it’s on old guard game publishers to realize and embrace this opportunity set. That could be a matter of “when” not “if.”
“We predict that at some point, the largest publishers will successfully launch an NFT project that is integrated into a flagship product, facilitating ownership and trading of digital items. While the timing is unclear, it’s obvious that the largest developers and publishers are working to make this happen,” concluded VanEck.
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