The global gaming market continues to prosper and is set to reach roughly $256 billion by 2025, boosted by COVID-19, which has acted as a catalyst for the industry, driving increased user engagement and spending. After a stellar 2020, these trends look set to remain above pre-COVID-19 levels, so we delve into three of the top gaming stocks to buy now.
Take-Two Interactive Bull vs Bear arguments
Take-Two Interactive (NASDAQ: TTWO) is responsible for producing some of the biggest gaming franchises around, including ‘Grand Theft Auto’ (GTA) and ‘NBA 2K’.
In its most recent earnings, Take-Two reported earnings per share of $1.30, beating expectations and revenue of $813 million, a 2% decline year-over-year (YoY), which was in line with expectations. Take-Two continues to be less reliant on hit releases and generated 70% of revenue from recurring consumer spending from in-game purchases in the quarter. ‘GTA V’ continues to drive growth and has sold over 150 million copies since its release in 2013.
The company has also expanded its mobile footprint and views this segment as a critical area for growth. In recent years, it has made several acquisitions in this space and acquired Nordeus, a mobile game studio, and creator of sports game ‘Top Eleven’. Management has a strong track record of successful acquisitions, and CEO Strauss Zelnick stated, “We haven’t made a failed acquisition”.
The company has a strong pipeline of games with 62 planned releases between Q4 2020 and 2024, which may include the highly anticipated ‘GTA VI’. There are also further opportunities in e-sports through its franchises like ‘NBA 2K’.
However, the company faces stiff competition and an underwhelming release, particularly of its hit franchise, could hurt its growth prospects.
Activision Blizzard Bull vs Bear Arguments
Activision Blizzard (NASDAQ: ATVI) is another publisher that is benefitting from the gaming trend with CEO Bobby Kotick previously stating that “we see a long-term trend of more people gaming than ever before in more geographies and on more platforms”.
In Q2 2021, Activision Blizzard exceeded its prior expectations with revenue of $876 million, an increase of roughly 19% YoY, driven primarily by games in its three core franchises, ‘Call of Duty’, ‘World of Warcraft’ and ‘Candy Crush’. Management also raised its full-year guidance, and in addition to this impressive growth, the company is profitable and pays a dividend.
Activision Blizzard’s mobile segment ‘King’ continues to perform with revenue increasing by 15% YoY and is well-positioned to tap into the growing mobile games market with 255 monthly active users. This is the second-largest segment by revenue and is increasingly important to the business in the ever-evolving gaming space.
However, the company is facing a disturbing lawsuit due to alleged widespread discrimination and sexual harassment in the company. Along with the financial impact that this may have, it could also damage the company culture, which is a serious concern despite Kotick’s promising to take “swift action”.
Sea Limited Bull vs Bear Arguments
Sea Limited (NYSE: SE) is not solely a gaming company, but has three primary divisions; Garena in digital entertainment, Shopee in e-commerce, and SeaMoney in digital financial services. It operates predominantly in Southeast Asia, where there is a growing middle class and a population of 585 million people.
Sea Limited got its name on this list as roughly 44% of its revenue is derived from Garena and its hit game ‘Free Fire’, along with its founding as a gaming company. This game has been a global phenomenon, and in Q1 2021, bookings were $1.1 billion, an increase of 117% YoY, and quarterly active users stood at 648 million. It has also been the highest-grossing mobile game in Latin America, Southeast Asia, and India for several consecutive quarters.
Furthermore, its other segments continue to fire on all cylinders, with total revenue increasing by 117% YoY. Shopee has overtaken Garena as the largest segment, with revenue increasing by 250% YoY, and is an exciting area for growth as it has entered Latin America.
However, a risk is the large proportion of revenue coming from ‘Free Fire’, and it will need to continue to engage users to grow. It is also unprofitable and reported a net loss of $320 million in the quarter, and faces stiff competition in both its domestic market and foreign markets from Alibaba’s Lazada and MercadoLibre.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.