5 ASX shares in an obscure but booming sector

Spectacular growth and tax incentives from all levels of government are supercharging this industry.

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A sector that ASX share investors are not paying much attention to is set to boom.

PwC's Entertainment and Media Outlook report has predicted that revenue from interactive games and esports will reach $4.9 billion by 2025, up from $3.4 billion last year.

That's a 44% increase in just 4 years.

"COVID-19 created an increase in gaming interest, both from new audiences and those Australians seeking an alternative form of entertainment, alleviating boredom and loneliness during lockdown," stated the report.

"With major sporting events cancelled or postponed during 2020, interactive gaming and esports filled a void for consumers as a way to stay socially connected to their communities through competitive entertainment."

Tax incentives galore for games industry

Growth for gaming is also being supercharged with recently announced government tax incentives for the nascent industry. 

The federal government is offering a 30% tax offset from July next year, and state governments are putting in their own discounts to attract the best businesses.

Privately held games developer Gameloft Brisbane will now double its staff numbers.

"We have been waiting for this news, we are going to double our Brisbane operation from 40 to 80 employees," Gameloft studio manager Dylan Miklashek told News.com.au.

"This can put Australia on a similar level to other countries."

ASX shares playing in the interactive gaming sector

So which companies could ASX investors look at for exposure into the gaming industry?

Here are the 5 most prominent players right now:

  • Playside Studios Ltd (ASX: PLY)
  • iCandy Interactive Ltd (ASX: ICI)
  • Mighty Kingdom Ltd (ASX: MKL)
  • Emerge Gaming Ltd (ASX:EM1)
  • Esports Mogul Ltd (ASX: ESH)

Cyan portfolio manager Dean Fergie has been a fan of Playside Studios ever since its listing late last year.

"The company has an exciting 12 months ahead with the upcoming release of several new games including titles based on blockbuster movies Legally Blonde and The Godfather which should contribute to a material uplift in revenues in FY22," he said in August.

That pipeline is already starting to bear fruit, with Playside shares rocketing a stunning 110% over the past month.

There seems to be some consolidation between two smaller players, iCandy and Mighty Kingdom. The former bought 7.8% of the latter's shares in September, after Mighty Kingdom's share price plunged 50% since its April listing. 

Emerge Gaming produces games for mobile phones and is profitable, but still very much a microcap at $33.6 million market capitalisation.

Esports Mogul is different to the other 4 companies in that it does not produce games as such. Instead, the company runs e-gaming tournaments for business clients.

"Australia's total e-sports revenue was $6 million in 2020, and this is set to grow to $16 million by 2025." reported PwC.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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