Facebook Inc. (FB), Microsoft Corp. (MSFT), and Activision Blizzard Inc. (ATVI) are among the gaming companies that have set their sights on the eSports market, which is set to explode in coming years.

While the industry is still in its infancy, Pacific Crest Securities thinks it’s going to be a big market, which bodes well for the early players—that also include Facebook Inc. (FB) and Amazon.com Inc. (AMZN). The Wall Street firm, citing gaming research firm NewZoo, said in a note to clients last week that close to 200 million people watch eSports regularly, which will fuel 50% or more year-over-year growth for the industry to $600 million in revenue this year alone. Add the launch of Activision’s Overwatch League, and that could mean even faster growth in 2018.  

Online Frontier

“Although eSports is still a frontier market, we believe its high growth, large audience, and attract demographics warrant investor attention,” wrote Pacific Crest analysts Evan Wingren and Andy Hargreaves. “Publishers have a unique strategic position to monetize. As owners of the underlying IP on which eSports is growing, game publishers will be able to create the most value over the long run through monetization of media rights and advertising, in our view.”

In May, Activision launched a league version of its popular Overwatch game, which boasted 30 million registered players in the first quarter of 2017. The league could turn out to be a future money spinner for the company. CEO Robert Kotick explained the math during Activision Blizzard's first-quarter conference call. According to him, the NFL generates $12 billion in revenue from 240 million viewers who watch approximately 7 billion hours of NFL content. "With hundreds of millions of people already watching e-sports and playing our games, over the long term our goal is to create opportunities that we believe could be of a similar scale," he said.

 

When it comes to the eSports market, Pacific Crest sees a lot of beneficiaries both on the publisher and platform sides. Activision is likely to emerge as a winner given its investments in the space while competitors Electronic Arts (EA) and Take Two Interactive Inc. (TTWO) haven’t made a meaningful push into that area as of yet. In the case of Electronic Arts, the analysts said any move into the market should drive the stock higher while with Take Two it doesn’t have many big game titles that lend itself to the burgeoning industry.

Facebook's Billions

As for the platform providers, Microsoft has its Xbox Live service, but in order for it to have an edge it will need an eSports game that is a hit on the console. New technology from its just announced Xbox Scorpio could allow the company to compete and regain market share. (See also: Microsoft Unveils World's Most Powerful Gaming Console.)

The analyst noted that Amazon’s Twitch service is the leader in streaming video gaming content with more than 10 million daily active users that watch nearly two hours each day. Still given the ecommerce company’s size it’s not enough to drive the stock higher in the near term. Facebook may end up being the force in the streaming of video games via its Facebook Live platform. (See also: Facebook and eSports' Team Dignitas Ink Video Deal.)

“Video is a key strategic focus for Facebook. eSports is a digitally native brand of content, so unlike moving traditional sports to Facebook video, this effort should be more seamless,” wrote the analyst. “For the eSports industry, being exposed to Facebook’s multibillion user base could drive meaningful [total available market] expansion if executed correctly.”

 

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