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Metaverse Gaming: Time for Investors to Play?

January 14, 2022

Read Time 4 MIN

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

Company Theme Index Weight (%) Total Return (%) Contribution To Return (%)
NVIDIA Semiconductors 9.1 125.5 7.2
Advanced Micro Devices Semiconductors 7.7 56.9 3.8
Sea Ltd. Mobile and Emerging Markets 6.9 12.4 1.9
Roblox Metaverse 2.4 25.0 0.7
NetEase Mobile and Emerging Markets 5.2 7.1 0.7
Unity Software Metaverse 4.6 -6.8 0.7

Source: Factset as of 12/31/2021. Returns reflect MVIS Global Video Gaming and eSports Index returns from 12/31/2020 - 12/31/2021. 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

Company Theme Index Weight (%) Total Return (%) Contribution To Return (%)
NEXON China 3.9 -37.2 -1.9
Nintendo Growth cool-down after 2020 5.7 -24.4 -1.7
NCsoft Idiosyncratic game risk 3.8 -36.1 -1.7
Tencent China 7.5 -19.2 -1.6
Bilibili China 4.7 -45.9 -1.5

Source: Factset as of 12/31/2021. Returns reflect MVIS Global Video Gaming and eSports Index returns from 12/31/2020 - 12/31/2021. 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

Access the opportunity

Consider the VanEck Video Gaming and eSports ETF (NASDAQ: ESPO) 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

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Important Disclosures

Source: VanEck; Factset

All company weightings as of December 31, 2021.

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This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

An investment in the Fund may be subject to risks which include, among others, investing in the video gaming and esports companies, software, internet software & services and semiconductor industries, equity securities, communication services and information technology sectors, small- and medium-capitalization companies, issuer-specific changes, special risk considerations of investing in Asian, Chinese and Japanese issuers, emerging markets issuers, foreign securities, foreign currency, depositary receipts, market, operational, cash transactions, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small- and medium-capitalization companies may be subject to elevated risks.

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Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.

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