Video games are the new thing. From Fortnite to Maelstrom, interactive video games have captured the hearts and minds of young (and sometimes older) people across the globe.
Competitive e-sports events and tournaments are also on the rise, with global e-sports revenue expected by some estimates to reach $1 billion by 2019.
And with a global community of almost 200 million players, growth rates are expected to be astounding.
In fact, the industry is currently growing at a 35% to 40% growth rate and shows no signs of slowing down.
So as investors, where do we go to gain access to this next big thing?
Well, the stock that is a must-own in this space is Cineplex Inc. (TSX:CGX).
I like Cineplex stock for its strong cash flows, its steady anchor in the movie exhibition business, and its fast growing presence in the e-gaming world.
Cineplex has embarked on a strategy to diversify from its stalling movie exhibition business and is successfully accomplishing this.
The company is using its theatres to hold e-Sports tournaments through World Gaming, which Cineplex acquired in 2015.
As its diversification strategy continues to pay off, we will continue to see an increase in revenue from the “Other” category, which includes Cineplex media, recreation rooms and the online e-sports platform, amusement and entertainment solutions.
In the latest quarter, the second quarter of 2018, the other category represented 24% of total revenue.
This compares to the segment’s contribution in the mid-teens percentage level just a few years ago.
While world gaming and e-sports is expected to grow fast, it is still in early stages, but we should expect this to be big in the next few years.
Any millennial or parent with a millennial child can already see this trend forming.
Great Canadian Gaming Corp. (TSX:GC) is another stock that is involved in the gaming industry, but this is more of the casino, old-style gaming business.
Great Canadian Gaming offers gambling, racetracks, entertainment and hospitality services across gaming facilities such as casinos and racetracks.
These facilities are operated under long-term contracts, and the industry has high barriers to entry, but this is the gaming for the older generations.
Revenue has increased 50% in the last five years and free cash flow has increased 26%, so it has been a good, profitable business.
Free cash flows are expected to increase nicely over the next few years, a result of acquisitions and investments.
But going forward, the booming industry is the e-gaming industry, and here in Canada, Cineplex stock offers good exposure to this, plus a hefty dividend yield of 5%.
