The video game industry continues to prosper amidst COVID-19, boosted by changing habits. These three stocks could be worthy additions to your portfolio today.
Sept. 24, 2020
Recent studies have highlighted the pandemic-related rise in gaming, with spend up nearly 40%, and estimations slowing down, we look at three companies that will benefit from this trend.
Activision Blizzard
Activision Blizzard (NASDAQ: ATVI) is one of the best stocks to profit from the gaming trend. It is the producer of hit titles such as the "Call of Duty" franchise and owner of the popular mobile game "Candy Crush".
Activision Blizzard reported an impressive Q2 in 2020, reaching over 425 million players and beating analyst expectations with $1.93 billion in revenue. The number of monthly active users in Q2 tripled year-over-year to 125 million in the Activision segment driven by "Call of Duty: Warzone" where hours played increased eightfold from the year prior. Revenue for this segment increased by an eye-popping 270% to $993 million a Q2 record due to increased user engagement and spending.
Activision's King segment has the largest number of monthly active users (MAU) with 271 million in the quarter. Revenue grew by 11% to $553 million, and operating income was the highest amount since the acquisition. This segment continues to grow, albeit at a slower pace with advertising and payer conversion increasing consistently.
After a rough 2019 with revenue decreasing year-over-year, management has a renewed focus on core franchises, and mobile and the future is looking up.
Tencent
Tencent (OTC: TCEHY) is a tech giant with a diverse revenue stream, but a significant portion of its revenue comes from the gaming division which stands at 34% in Q2 of 2020. Similar to many other countries, China has seen an uptick in the number of users, particularly on mobile games, and monthly active users internationally have also increased year-over-year.
Revenue for its gaming division increased by 35% from the year prior in Q2 of 2020, driven by online gaming units growth of 40% offsetting a decline in PC revenue and coming in at $5.5 billion. Smartphone games revenue increased by 62% fuelled by hit titles such as "Peacekeeper Elite".
Tencent is invested in many gaming companies including its 10% stake in Sea Ltd (NYSE: SE) and 40% stake in "Fortnite" publisher Epic Games. These investments in other gaming companies lessen the dependence on gaming in China and diversify Tencent geographically.
Tencent also saw growth in its other business' including fintech and advertising with revenue increasing 29% year-over-year. This tech giant should continue to prosper bolstered by a growing middle class in China and its largest segment gaming.
Take-Two Interactive
Take-Two Interactive (NASDAQ: TTWO) is the smallest company of the three but has consistently beaten the market over the last few years. It has helped to create some of the best selling and widely anticipated video games of all-time such as the "Grand Theft Auto" and "Red Dead Redemption" franchises.
The company historically had lumpy revenue growth coinciding with new releases. However, revenue has become more steady, with recurring revenue from in-game purchases and other franchises. Recurrent spending continued to increase in the last year by 5% from fiscal 2019-2020, making up 45% of total revenue.
Take-Two exceeded expectations in Q1 of fiscal 2021, including records for revenue and net bookings. Revenue increased by 54% year-over-year to $831.3 million, and net bookings increased by 136% to $996 million driven by recurring consumer spending. This growth was driven by stalwarts such as "Grand Theft Auto V "that had a record first quarter of sales along with "NBA 2K" that hit a milestone of $1 billion in net bookings since launch.
It continues to grow and has 93 titles planned for release in the next five years, which should enable the company to grow revenue further. The release of new consoles such as Sony's PS4 should also help to drive sales in the holiday season.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
