Can you start off with describing yourself and what you do?
– My name is Mads Christiansen, 49 years old. I am from Denmark and I have a college degree. Today, I work part time in my field and part time (3-4 full workdays a week) as a private investor. Throughout the years I have come to follow the gaming industry more and more closely and today I am “specialized” in investing in gaming companies. I am in Danish national radio approximately 1 time a month in the program called “Millionærklubben” on Radio24syv.
– I do educational sessions about the gaming industry and investment herein at different investment events, and I help private companies that wish to have an edge by being up to date about the gaming industry and its development. Led on by my passion for educating and entertaining about the gambling and gaming industry, in May this year I started a Youtube channel called “The gaming and esport investor”. I produce and upload a weekly video update on the gaming stocks. The weekly video is a summary of all the observations I have made during the past week.
– My plans for my Youtube channel are to continue to produce a weekly summary video but also to produce various videos about different topics in relation to investments and the gambling and gaming industry. I have produced a video about the company Sea Limited, a video with general information and input about investing in the gaming industry, and one about how I see the gaming industry in the years 2019 and 2020. I really want to make relevant videos for both newbies and more experienced investors about investment strategy. I want to share the knowledge I have obtained during the years as a private investor. In my opinion too much of the information you can find as a newbie comes from companies that intends to sell their services. This has a misleading effect.
What’s the story behind you starting to invest in the stock market?
– In 2002 I had saved some of money. I decided to try start making the most of my money. My first stock was ISS. I earned 1,000 DKK over the course of 2 months and then I was hooked. Since then, I have educated myself by reading a lot of books and articles about investments, participated in events and tried out different investment strategies.
– For a couple of years, I also went “all in” on playing online poker. That taught me some of the most important basics that I use today when I invest. The single most important thing is knowing that if I do not have an edge over the market in relation to an individual stock, I must be a passive, long-term owner of the company. This means that I trade a lot less than others because I often cannot look myself in the mirror and convince myself that I actually have an edge.
It’s obvious that you really like gaming as a investment. Whats the logic behind this?
– The gaming industry is a rapidly growing industry because of demographics, the technological development, and because of the ever-improving quality of content. These are some secular trends that will benefit the industry for many years to come.
– Demographic trends are the growing middle class of the world and that an increasing part of population are starting to play.
– The most important driving force for the development in the content, and the gaming industry as a whole, is technology. There is a constant development that makes it possible to continue to make better and more immersive games. Also, there are changes in technology that enables accelerated development for a period. To mention a couple of examples of this, take consoles, optical drives and smart phones. I think that we are on the verge of the next big technological jump, namely cloud gaming. I believe that PC / console games will become mainstream in the coming decade due to cloud gaming.
– The development of content these years also provide growth, a growth I see continuing for many years. Gaming is becoming more and more social and interactive. It is fun to play against others, with others against others, talking with others while playing, and texting and watching others play. I think games will become platforms for social interacting, a place where people with mutual interests meet and interact. That is actually a huge potential for gaming and eventually gaming is going to outgrow gaming by tapping into the social media market.
If you were forced not to invest in gaming – what would your portfolio look like?
– I am long term investor, and I like secular trends. When I look at an investment opportunity, I ask my self “is this also attractive for the long-term investor in five years?”, and I only invest if the answer is “yes”. The reason behind this is that I can comfortably hold these long-term attractive investments through a period of negative market sentiment.
– So, my portfolio would have been:
I like Ambu and Coloplast, because they sell physical products, not medicine. The Danish company SP Group is also a favorite, although only a smaller part of their revenue is for the medical industry.
The industry of online gambling is growing 7% yearly due to the shift from physical casino/betting shops to online outlets. I like Kindred and Evolution Gaming.
Internet tech stocks
FANG, social media, and more in that genre. This industry is riding the same secular trends as the gaming industry.
What do you think about esports in upcoming years?
– I believe that we will most likely see a very positive development over the next 5-10 years, because non-gamers will begin “consuming” esport.
– Today, esport is primarily consumed by gamers. I think the reasons for this are:
1.That many of the games that esport are founded on are difficult to understand for a non-gamers. That is why CoD is the right bet for Activision Blizzard
2.Because the public interest among non-gamers is too small. This issue is being addressed by geographically, locally located teams, i.e. in CoD league. In addition to this, esport / streaming stars like Ninja are becoming celebrities that has the general public’s interest
3.That non-gamers at large have not yet been able to play the games themselves in their living room. Cloud gaming will change that.
If you would like to invest into esports today, what do you look closer at?
– Comparing the business model of esport with ordinary sports, the most fundamental difference is that in esport the games are owned by a company. In soccer, no one owns the right to the game. The value creation in soccer is in the events and tournaments. For example, Premier League, World Cup and Champions League. These tournaments are typically old and are brands in themselves. In esport there is no such established events or tournaments. It is the IP-owners that create and / or controls the events and tournaments.
– If you are interested in investing into esport, you can invest in:
1. Hardware production companies (this is not an interest area of mine)
2. Media companies – Google (Youtube) and Amazon (Twitch). Very little exposure against esport. Chinese streaming companies (not an interest area of mine since I do not have a fair chance of understanding the market they are competing in)
3. Broad companies – Tencent and Sea Limited, these are two of my top picks
4. The esport teams – There are no big, public listed teams. The price to sales is on 10+ and they are not profitable. So, this is only something for the “Big boys”.
5. Live event organizers – In this category we have Swedish MTG.
I think that these are not big enough to hold a strong position for negotiation.
6. IP owners / the games’ developers – This is where I want to get my exposure towards esport right now. I think there is a huge potential for esports and for PC / console games in the group of currently non-gamers. Many of these currently non-gamers will start consuming games by playing themselves and watching streaming of games and esport in the coming 10 years. I also think we will see a major league of worldwide, esport backed games, which are becoming huge because they appeal to both current gamers and non-gamers. I believe Activision Blizzard’s Call of Duty is the most obvious candidate to become one of those games. Esport will be one of the key drivers to attract non-gamers to this franchise.
A large chunk of your portfolio is spread across the globe. What is the biggest threat to this strategy?
– There are several problems with this. In respect of American stocks, I personally find it challenging to understand their accounting principles and the ways in which they present their earnings’ results. In respect of Asian stocks, my problem is that my insight and knowledge about the individual companies and the market in general is poorer and more uncertain. The knowledge I can get is limited because investor relations most often is of low priority. Relatively little information is provided and sometimes it is not translated into English and it is tedious work to work with Google Translate and in addition to this the translations you are able to make using this tool can leave you with some uncertainty and unclarity.
– Being a Dane, I do not understand the Chinese, Japanese or South Korean market, no matter how much I read and try to learn, I will never fully learn and understand the markets and the dynamics of the markets. So overall my problems / challenges are my lack of insight and understanding both in respect of American and Asian stocks. This gives me a disadvantage compared to the local investors, which I need to factor in.
What are the perks with this strategy?
– The pricing of companies within a specific industry can easily fluctuate from market to market. It does not change that rapidly. But for instance, there has been a time where gaming stocks were cheep in the US and expensive in Europe. This gave Ubisoft the opportunity to acquire American games studios. So, as an investor it makes good sense to look at the relative pricing in different geographical markets. A current example is mobile games companies where we see a lot higher pricing in Europe and US than in China, Hong Kong and Singapore.
Could you tell us a bit about your best investment cases right now?
– Sea Limited is a Singapore based company listed in New York, the ticker code is SE. Tencent and the management owns about 40% each of Sea Limited. It is an internet tech company with 3 divisions operating in Southeast Asia (SEA); 1) Garena, a gaming company 2) Shopee an e-commerce company and 3) Airpay, a digital wallet.
– Garena is the largest esport provider in SEA. Garena has an agreement with the parent company Tencent, to bring their games to the market in SEA. Garena’s own self develop game ‘Free Fire’ is one of the biggest mobile games franchises in the world right now, topping the grossing lists in SEA, South America, India, Pakistan and in many more of the upcoming economies. Garena has expertise in making mobile games, that perform well on lower end smartphones. Thus, they have made a PUBG Lite for mobile, and are making a CoD lite version.
– Shopee is now 4 years old and is already the market leader in SEA. Shopee’s biggest competitor is Alibaba owned Lazada, which is much older. Although only operating in SEA, Shopee is the third most downloaded shopping app worldwide right now.
– Airpay is an e-wallet solution, which is essential for running and operating an internet business in SEA, because the region is underbanked. Airpay offers people reverse ATMs so users put in physical cash in the ATM and have them transferred to their e-wallet.
– The longer-term prospects are compelling. The economic growth in the area will be boosted for decades from a young population, more than half is below 20 years old. The e-commerce sector is underdeveloped and is going to mature over the coming decades. E-commerce is only about 4 % of total commerce right now, whereas in China it is 20% or more.
Garena has a solid foothold in the regions of the world where most of the 1 million new daily internet users / gamers emerge. These regions have an immature app spending behavior right now, with many downloads, and low grossings. But over the next decades they are going to mature towards higher grossings and lower downloads, like we see in the West, Japan, China etc.
Sea Limited, being a crossover of Tencent and Alibaba, has the potential to emerge into the super app of SEA with the huge potential that comes from that.
– Nintendo everybody knows. I buy it in Frankfurt, the ticker is NTO. There are several things that makes Nintendo attractive right now.
Nintendo trades with a discount to its peers. This is because Nintendo has historically been a hardware producer. Right now, Nintendo’s ‘Switch’ is a huge success. It is the best portable device giving you access to PC / console games – and I think it will keep this position. Many gamers have a Switch because of the mobility. When cloud gaming expands the number of gamers, that plays the larger games, I think this will increase the demand for Switch, which can be used to play these games on the move. I also think Nintendo will transform into a company more focused on software in the future. They have so much IP, that they can produce great content with. Nintendo has never sold much in China. But recently they partnered up with Tencent to start both software and hardware sales in China. Every fourth dollar spent on gaming worldwide is spent in China, so China will increase Nintendo’s total addressable market by up to 33%.
I hope they will do the same as Activision Blizzard, and have Tencent or NetEase produce mobile games on their IP. They usually use Dena, and I am not impressed by the results of that cooperation.
– Short term, Nintendo has a massive line up of hardware and games coming out within the end of 2019. Therefore, Nintendo is both a shorter term, and longer-term top pick for me.