In 1996, Warren Buffett’s annual shareholder letter outlined a type of company he labelled “the Inevitables.”
The name indicated companies that were so solid they would still be the top player in their market in thirty years.
Buffett’s list of Inevitables included cigarette manufacturers such as Altria and Phillip Morris. “I’ll tell you why I like the cigarette business,” he said, “…they’re addictive.”
Buffett strongly believes that companies that cater to habit-forming tendencies inevitably outperform in all markets.
Take Starbucks, for example. Even though the Katusa office brews its own Costco drip coffee, employees still fork over a few bucks every day for that jolt of espresso.
That daily habit brought Starbucks from $4 a share in 2009 to just under $90 recently. That’s a 2,250% rise in a single decade…
New inevitables like Starbucks, Coca-Cola, and Netflix don’t come along very often.
But there’s a compelling new investment sector that has everything necessary to be the next Inevitable.
The Next Generation’s Biggest Obsession Isn’t Vaping
The next big habit is already so bad that China implemented severe restrictions on it for minors.
Officials limited how much they can use it, and how much money they can spend on it.
The biggest obsession of the 2020s is something you probably didn’t expect: video games and esports.
Remember, Warren Buffett made his list of inevitables about addictiveness.
In fact, he made a billion-dollar bet on Coca-Cola partially due to the addictiveness of sugar.
For gamers, video games and their communities are the sugar. They’re designed to keep people coming back again and again.
And they’re extremely effective at it.
Gamers help the entire gaming industry generate over $150 billion per year in revenue.
And that’s projected to top $200 billion in 2022.
Let’s give that a little perspective:
- Apple made “only” $52 billion off of iPhones in 2018.
- The video games industry has more annual revenue than McDonald’s, Delta Air Lines, American Express, and Anheuser-Busch—combined.
Another “sweet treat” that keeps gamers coming back for more is esports. That’s where gamers watch professional gamers compete against each other.
They watch live in real sports stadiums, as well as through online streams on their devices around the world.
By mid-2020, esports will be chasing the NFL for the top spot in viewership in the United States, as seen below.
There are very few opportunities where you can get investment exposure to the lucrative new world of online video gaming communities.
Not to mention direct ownership of the booming esports sector.
The Katusa Research Special Situations team has identified an Inevitable that ticks all of those boxes…
Introducing Enthusiast Gaming (EGLX:TSX)
The key to being an Inevitable is absolute industry dominance of an addictive product.
And Enthusiast Gaming has taken over the video game community industry in the United States—and around the world.
- The EGLX network is now ranked by Comscore as the largest gaming network in the U.S.
That beats out other leading gaming websites such as Amazon-owned Twitch and IGN.
It’s absolutely mindboggling how much traffic the EGLX network gets:
- It generates almost 1 billion total views a month over its entire network…
- It reaches far more combined unique visitors across all platforms than any other gaming entity in each market… almost 44% greater than the next entity in the U.S. and 102% greater than in the U.K.
- EGLX Ownership – EGLX’s Chairman also owns a professional sports team and a 19,000-seat stadium. That’s like Coca-Cola also owning McDonald’s—it’s an effectively free distribution channel. There are many synergies to be explored here…
- Esports Team Valuation Growth – We deliberately sandbagged the value of EGLX’s esports team’s growth for our valuation model. The media rights per viewer are currently just a fraction of what NFL and others sports are… this will change.
- Esports Brand Helping Ad Sales – The esports brand has an additional 40 million followers that can be bolted onto its strong advertising arm. This will allow companies to promote their products across Enthusiast websites, teams, and athletes/influencers. It’s an incredible triple threat.
- Ads Helping Esports Brand – EGLX can help build brand awareness for their esports division team across Enthusiast’s vast network of 200M+ monthly users.
- Accelerated Direct Sales – We were very conservative in our valuation with the growth of Enthusiast’s direct sales channels. If they execute as planned, there could be huge upside to their advertising network.
To view our full report on Enthusiast Gaming (EGLX:TSX) The World of Digital Alchemy: Profiting from the Explosion of Digital Traffic and the booming traffic around the online video game industry, click here.
Because you’re a member of Katusa’s Investment Insights, this detailed report is free exclusively for you. To access your free report and our full analysis on the video game sector, click here.
The Katusa Research Team
Katusa Research and its directors, employees and members of their households indirectly own shares of the following Companies which are described in this publication: none.
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