In the last decade, gaming stocks have outpaced the broader equity indices consistently. A rapidly expanding addressable market, the shift towards mobile gaming as well as the ongoing pandemic acted as key drivers for companies part of this segment. Here, we look at three gaming stocks in Skillz (NYSE: SKLZ), Roblox (NYSE: RBLX), and Take-Two Interactive (NASDAQ: TTWO) that are well poised to derive outsized gains to investors in Q4 of 2021 and beyond.
A growth stock that is trading 76% lower than its all-time highs, Skillz is currently valued at a market cap of $4.16 billion. Skillz is not a traditional video game company and allows game developers to monetize content. It owns and operates a proprietary online-hosted tech platform where game developers can host tournaments and provide competitive gaming to users all around the world.
This business model has allowed Skillz to increase sales from $50.77 million in 2018 to $230.1 million in 2020. In the second quarter of 2021, its revenue rose by 52% year over year to $89.5 million. Wall Street now expects sales to rise by 69.5% to $390 million this year and by 42.5% to $55.7 million in 2022.
While still unprofitable, the company’s gross margins stand at a solid 95%. So it’s quite evident that Skillz is sacrificing profitability for growth, a common feature among tech companies.
Roblox offers an online entertainment platform. The Roblox Client is an app where users can explore digital worlds while Roblox Studio is a toolset where developers can create and launch 3D experiences and other content.
Investors will be wary of the stock’s steep valuation given a market cap of $45.3 billion and a trailing 12-month sales of $1.4 billion. However, Roblox has managed to increase sales from $325 million in 2018, and revenue is forecast to touch $3.17 billion by 2022. In the second quarter of 2021, its sales more than doubled to $454 million while booking grew by 35% to $665.5 million and free cash flow rose by a stellar 70% to $168 million.
Roblox has built a platform that has gained rapid traction among the gaming community due to its innovative portfolio of products and solutions. It ended Q2 with 43.2 million daily active users while the user-base grew to 46 million by the end of July 2021.
3. Take-Two Interactive
A legacy gaming company, Take-Two Interactive stock is down 30% from all-time highs. Despite the pullback, the stock has returned over 1,000% to investors in the last 10 years. Take-Two, similar to most other game developers, will experience cyclical revenue trends as it continues to depend on the release of popular franchises.
Take-Two in fact has several million-dollar franchises such as ‘Grand Theft Auto’ and ‘Red Dead Redemption’. It has also expanded online offerings that now account for a significant part of total revenue.
The company’s latest investor presentation confirms Take-Two Interactive will release more than 20 games over the next three years. While sales are expected to fall by 4.3% to $3.48 billion in fiscal 2022, they might grow by 17.5% to $4 billion in fiscal 2023 that ends in March.
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Contributing Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.