Newzoo, a gaming market and analytics firm, estimated that the gaming market generated revenue of $177.8 billion last year, which reflects a jump of 23.1% year-over-year.
Video games showed up in arcades in the 1960s at malls or local convenience stores. The 1970s propted PCs on a wider scale and home video game consoles slowly started to take over the video game market and since then, computer games have become a powerful global industry. It grew during the pandemic — consumers turned to gaming through desktop, mobile, gaming consoles and social networks for entertainment like never before.
Are video game stocks your beat? Let's find out whether you might want to invest in this industry (which certainly isn't going anywhere soon).
What to Look for in Gaming Stocks
Video games have exploded in popularity and accessibility in recent years. For those who play video games, it’s a blast. For investors who are trying to capitalize on the industry, there are some challenges. The video game industry is a multi-billion dollar industry that continues to grow with no end in sight. As more people buy into the video game craze, the pressure mounts to meet production demands while also maintaining quality standards for the end product. Heavy reliance on third-party developers creates another concern: the uncertainty of whether or not they will be able to keep up with demand will continue to plague the industry until it can find a way to solve these issues.
Where do revenues come from?
- Hardware: Consoles, processors, screens, controllers and other accessories (which are expensive to produce, from development costs, marketing, distribution fees and more.
- Software: The actual games themselves
The gaming industry should grow exponentially over the next several years and developers and gaming companies must provide clarity regarding their ability to keep up with demand.
Since gaming stocks are part of the consumer discretionary sector, they have volatility and unpredictability. This means that economic changes and their cyclical nature can affect them, but many gaming stocks are currently undervalued.
3 Gaming Stocks to Buy
Let's take a look at the three gaming stocks you may want to consider buying from this billion-dollar industry.
CAPCOM Co., Ltd., headquartered in Osaka, Japan, plans, develops, manufactures, sells and distributes home video, online, mobile and arcade games.
Its successful releases, sales and earnings growth through its Resident Evil and Monster Hunter franchises as well as Mega Man, Devil May Cry and Street Fighter. Capcom’s Resident Evil Village has gone over 5 million units sold since its May 2021 launch.
Capcom returns 30% of its annual profits to shareholders and it prioritizes returning cash to shareholders.
At the end of 2021, Capcom consolidated business results for the nine months ended December 31, 2021:
- Net sales were 88,163 million (up 35.9% year-over-year).
- Operating income was 35,096 million yen (up 43.9% year-over-year).
- Ordinary income was 36,148 million yen (up 50.1% year-over-year).
- Net income attributable to owners of the parent was 26,708 million yen (up 52.4% year-over-year).
Activision Blizzard Inc., headquartered in Santa Monica, California, develops and publishes interactive entertainment. The company develops and publishes interactive software products and entertainment content, particularly for the console platform. The Blizzard Entertainment segment develops and publishes interactive software products and entertainment content. Microsoft has agreed to acquire Activision Blizzard for $95 per share in an all-cash deal by 2023.
Even at the longer end of that timetable, investors would match the historical annualized performance of the S&P 500 return of 10.5% of investors.
For Q3, Activision Blizzard’s net revenues were $2.07 billion compared with $1.95 billion for the third quarter of 2020.
- GAAP net revenues from digital channels were $1.85 billion.
- GAAP operating margin was 40%.
- GAAP earnings per diluted share was $0.82, compared with $0.78 for the third quarter of 2020.
- Operating margin was 43% and earnings per diluted share was $0.89, compared with $0.88 for Q3 2020.
Operating cash flow was $521 million, compared with $196 million for the Q3 2020. Operating cash flow was $2.89 billion for the trailing 12-month period.
Electronic Arts, Inc., headquartered in Redwood, California, develops, markets, publishes and distributes games, content and services for game consoles, PCs, mobile phones and tablets. The company develops and publishes games and services across sports, first-person shooter, action, role-playing and simulation genres, including the following brands: Battlefield, The Sims, Apex Legends, Anthem, Need for Speed and Plants v. Zombies brands. It also offers FIFA, Madden NFL and Star Wars brands.
Electronic Arts is the second-largest video game company by revenue and maintains a leading position in the sports subgenre of gaming. Electronic Arts June 2021 acquired Glu Mobile, which has been expanding into mobile games.
Electronic Arts has 540 million unique active accounts and Q3 was the largest quarter in the company’s history for net bookings and strong cash flow, and provides a strong foundation for growth:
- Net bookings were $7.254 billion, up 22% year-over-year.
- The EA player network has grown to more than 540 million unique
active accounts.
- More than 180 million monthly active accounts on all platforms
- Apex Legends monthly active players were up more than 30% year-over-year.
- Players spend 20% more time in 2022 compared to the
previous year.
- Net cash provided by operating activities was a record $1.534 billion for the quarter and $1.826 billion for the trailing 12 months.
- EA repurchased 2.4 million shares for $325 million during the quarter, bringing the total for the last 12 months to 9.4 million shares for $1.3 billion.
- EA paid a cash dividend of $0.17 per share during the quarter.
Consider Gaming Stocks for Your Portfolio
Why not consider gaming stocks for your portfolio? The industry will return to growth and 2023 revenues should zip up to $205 billion.
Gaming stocks can continue to see stocks jump and go over and above analysts' consensus price target — just do your research to make sure you choose the right gaming stock.
Before you consider Activision Blizzard, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Activision Blizzard wasn't on the list.
While Activision Blizzard currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
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