Video games are big business. In 2019, sales of video games were nearly $150 billion worldwide according to the research firm Newzoo. That marked a 7.2% growth from the previous year. And, at the time of the report Newzoo estimated that global video game sales would rise to nearly $160 billion in 2020.
But in the aftermath of the Covid-19 pandemic, things may be changing. The video game industry is undergoing profound changes. Consumers truly have an a la carte model for gaming. Do they want to use a traditional console? They can. How about their laptop? Check. And they can also use their mobile device.
But it’s not just the hardware they use. Multiplayer games are now the rage as is the ability to play online versus other competitors. And then there’s the whole movement towards esports which is helping to inspire a service like Twitch that allows people to watch other people play video games.
As investors, the growth of digital downloads and cloud-based streaming is playing a significant role in the way video game stocks are perceived. And it’s a big reason why many video game stocks are among the best investments at the moment.
In this special presentation, we’ll look at pure-play video game stocks as well as technology companies that are leveraging their strengths to get a share of this growing pie.
Quick Links
- Activision Blizzard
- Take-Two Interactive
- SciPlay
- NetEase
- Electronic Arts
- Microsoft
- Nintendo
- Apple
- Alphabet
- Amazon
#1 - Activision Blizzard (NASDAQ:ATVI)
One of the best pure play video game stocks you can own is Activision Blizzard (NASDAQ:ATVI). Long before the world moved indoors, Activision had begun to shift its model towards digital downloads. This has made the company a cash flow machine, which is something that investors reward. As a result, ATVI stock has climbed over 50% in the last 18 months.
In addition to its attractive business model, Activision also has two of the most popular gaming franchises with multiplayer online games (MMO) including Call of Duty (which is an Activision title) and World of Warcraft (which is a Blizzard title). Through its merger with Vivendi Games, the company also owns the game maker King the company behind the Candy Crush Saga. This makes Activision a significant player in mobile gaming.
Activision is also a growing player in the esports market. The company has competitive leagues for its Overwatch and Call of Duty game franchises.
On June 9, 2020, Jefferies analyst Alexander Giaimo rated Activision stock as his top pick in the gaming sector. Giaimo also gave ATVI stock a price target of $80, which would move the stock approximately 10% above its current level.
About Activision Blizzard
Activision Blizzard, Inc, together with its subsidiaries, develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King. It develops and distributes content and services on video game consoles, personal computers, and mobile devices, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision and Blizzard products.
Read More - Current Price
- $94.42
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#2 - Take-Two Interactive (NASDAQ:TTWO)
One of the unquestioned leaders in esports is Q(NASDAQ:TTWO). Who would have imagined that a large group of people would watch esports games? And to be honest, Take-Two could not have foreseen the boost it would get from a global pandemic that kept people at home without live sports.
However, an opportunity is just a function of being prepared. And Take-Two was laying the groundwork for this opportunity since 2017. That was when the company made an agreement with the NBA to launch the NBA 2K League. The significance of having an esports league sanctioned by a professional sports league at this time can’t be overstated. Take-Two had a captive audience for the NBA2K 2020 charity tournament that was televised on ESPN in April.
And Take-Two is not just confined to esports. A key reason the esports synergy exists is due to the company’s NBA 2K title that is popular by millions of consumers including many NBA players. The company also owns Rockstar Games which has the Grand Theft Auto and Red Dead Redemption franchises.
About Take-Two Interactive Software
Take-Two Interactive Software, Inc develops, publishes, and markets interactive entertainment solutions for consumers worldwide. It develops and publishes action/adventure products under the Grand Theft Auto, LA Noire, Max Payne, Midnight Club, and Red Dead Redemption names, as well as other franchises.
Read More - Current Price
- $185.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $190.00 (2.4% Upside)
#3 - SciPlay (NASDAQ:SCPL)
One of the hottest gaming segments is social casino games. And SciPlay (NASDAQ:SCPL) is perhaps the biggest name in the space. Social casino games are online versions of popular, and classic casino slot machine games. According to SciPlay, approximately 2.4 billion people played a mobile game in 2019.
In a presentation to investors, SciPlay – which was a division of Scientific Games – showed why there is so much excitement surrounding social casino games. The firm Eilers & Krejcik showed the worldwide mobile and table gaming market in 2019 was approximately $84 billion. Of that amount, social gaming was only $6 billion, not even 10%.
SPCL stock dropped nearly 50% after its initial public offering (IPO) in May. But after bottoming out in March, the stock is recovering nicely and is within shouting distance of its IPO price. The reason isn’t hard to find. SciPlay got a huge boost with the Covid-19 pandemic that took away many other forms of entertainment.
Even after a slight miss on its first-quarter earnings report, SPCL stock is continuing to move higher.
About SciPlay
SciPlay Corporation develops, markets, and operates a portfolio of social games for mobile and web platforms in North America and internationally. It offers social casino games, such as Jackpot Party Casino, Gold Fish Casino, Quick Hit Slots, 88 Fortunes Slots, MONOPOLY Slots, and Hot Shot Casino, as well as casual games comprising Bingo Showdown, Solitaire Pets Adventure, and Backgammon Live.
Read More - Current Price
- $22.94
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - NetEase (NASDAQ:NTES)
If you have an appetite for Chinese stocks, NetEase (NASDAQ:NTES) is definitely worth your attention. The company’s stock was already soaring when it posted its impressive first-quarter results. The company reported a revenue gain of 18% in the quarter, which is particularly noteworthy since the Chinese economy was being heavily affected by the Covid-19 pandemic.
However, NetEase was well positioned to stand out during a time when consumers were sheltered in place. To begin with, the company’s online gaming business, which accounts for nearly 80% of the company’s revenue, posted a 14% increase.
NetEase also saw strength from its spinoff, Youdao (NYSE:DAO). Although Youdao accounts for just 3% of the company’s total revenue, it grew at a 140% clip in the past year. The intelligent-learning company was a natural fit at a time when physical schools were closed.
NetEase’s other business units, including its online music business, grew over 28% on a year-over-year basis.
About NetEase
NetEase, Inc engages in online games, music streaming, online intelligent learning services, and internet content services businesses in China and internationally . The company operates through Games and Related Value-Added Services, Youdao, Cloud Music, and Innovative Businesses and Others segments.
Read More - Current Price
- $87.53
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $107.29 (22.6% Upside)
#5 - Electronic Arts (NASDAQ:EA)
Electronic Arts (NASDAQ:EA) is one of the most recognized names in the video game industry due to its Madden NFL and FIFA franchises. The company is also the name behind the Star Wars video game. EA is the second-largest video game company in the Americas and Europe in terms of two key metrics. First, in revenue, which was over $5 billion in the last year. Second, they are only trailing Activision Blizzard with regard to market cap.
Electronic Arts has successfully created a model of developing and distributing small franchised games. The company has recently partnered with Valve to begin distributing video games via the digital distribution site, Steam. EA just released 25 titles in early June. The company is planning to launch new games that have been developed for the PC onto Steam as well.
EA stock is up nearly 30% in the last 12 months and almost 15% in 2020 alone. An additional catalyst for the stock is expected when Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) release new consoles this fall.
About Electronic Arts
Electronic Arts Inc develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It develops and publishes games and services across various genres, such as sports, racing, first-person shooter, action, role-playing, and simulation primarily under the Battlefield, The Sims, Apex Legends, Need for Speed, and license games from others, including FIFA, Madden NFL, UFC, and Star Wars brands.
Read More - Current Price
- $166.71
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $165.37 (0.8% Downside)
#6 - Microsoft (NASDAQ:MSFT)
Speaking of Microsoft (NASDAQ:MSFT), we start looking at our list of companies that are not pure plays in the video game industry with the company from Redmond, Washington. Microsoft entered the video game market in 2001 with the release of the Xbox. Since then the company has released the Xbox 360. This gave gamers the added benefit of Xbox Live.
Gamers could download games and play other gamers online. Microsoft took things one step further with the release of its Kinect device. This removed the need for a handheld controller by employing a combination of cameras and infrared sensors that allowed players to move in front of the Xbox to interact with the game.
The catalyst, of course, is that Microsoft is set to deliver a new version of the Xbox this fall, the Xbox Series X. However, in a business where typically the number of consoles sold is the only measuring stick, Microsoft seems less concerned.
Instead, the company recently promoted three features that should benefit the company regardless of how many Series X models fly off the shelves. For investors, one of those features is the Xbox Game Pass that allows consumers to build their gaming library for a monthly fee.
About Microsoft
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services.
Read More - Current Price
- $415.49
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $503.03 (21.1% Upside)
#7 - Nintendo (OTCMKTS:NTDOY)
One of the fascinating things about the evolution of the video game industry has been the movement from consoles to handhelds, back to consoles. In 2017, Nintendo (OTCMKTS:NTDOY) said how about both? They introduced the Nintendo Switch that can be used as both a portable player and as a home console.
Most likely to avoid competing directly with Microsoft and Sony, Nintendo is not planning to release a new Switch until 2021. But that is not deterring investors from bidding up the company’s stock. One reason for this is that Nintendo continues to release new games for the Switch. And they are doing this in a digital fashion. Nintendo is not as advanced in the digital delivery space as some of its competitors, but it is rapidly closing that gap. Investors are excited about the opportunity that will present in 2020.
Nintendo is also going to be dipping its toe into being an entertainment provider by producing TV shows and movies based on characters in its franchise.
About Nintendo
Nintendo Co, Ltd., together with its subsidiaries, develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It also offers video game platforms, playing cards, Karuta, and other products; and handheld and home console hardware systems and related software.
Read More - Current Price
- $13.21
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#8 - Apple (NASDAQ:AAPL)
I don’t need much reason to get excited about investing in Apple (NASDAQ:AAPL). And to be fair, I’m not sure that Apple Arcade is going to be a huge revenue driver for the company. But it’s another way for Apple to remain sticky in the eyes of their consumers.
Apple Arcade is a subscription service that allows consumers to search for and download games on any of their Apple devices. The subscription is $4.99 per month after a one-month free trial. A major selling point for the service is that the games are not interrupted by ads, nor do they require in-app purchases.
Although Apple does not provide specific subscribers or revenue numbers for Apple Arcade, a CNBC analysis suggests that Apple’s App Store generated approximately $50 billion in revenue in fiscal 2019. In the second quarter of Apple’s 2020 fiscal year, the company generated over $13 billion in their Services division, which includes Apple Arcade.
If investors need another catalyst, remember that Apple is slated to deliver yet another iPhone later this year.
About Apple
Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
Read More - Current Price
- $229.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $235.25 (2.7% Upside)
#9 - Alphabet (NASDAQ:GOOGL)
Alphabet (NASDAQ:GOOGL) the parent company of Google is a recent entrant into the video game sector. Google believes that it can convince users to opt for its streaming game service, Stadia. The benefit of Stadia is simple enough, there’s no hardware required. Games are streamed from Google’s massive data centers and broadcast to our mobile devices.
But here’s the catch. When a user is playing a game via Stadia, they are watching videos of the game as it streams from a Google server. That means that there is a lag and the games can be glitchy. But that’s no reason to stay away from Stadia. The coming move to 5G will bring faster internet speeds and even more powerful data centers.
If there’s one thing that’s odd about the Stadia service it’s this. Consumers will be required to pay a subscription fee (after a free trial). That’s good. But once you have the service, you have to purchase game titles individually. I’m not sure how that will go over with consumers.
Nevertheless, Google is leaning into the future. Will this be another Google Plus? Possibly. But given the company’s track record it’s hard to bet against its success.
About Alphabet
Alphabet Inc offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, devices, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
Read More - Current Price
- $175.98
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 35 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $205.90 (17.0% Upside)
#10 - Amazon (NASDAQ:AMZN)
If Google is trying to position itself as the Netflix (NASDAQ:NFLX) of gaming, then Amazon (NASDAQ:AMZN) may be trying to be the Roku (NASDAQ:ROKU). Amazon’s Twitch is similar to Roku in that it is agnostic to which gaming platform a customer is using. Twitch essentially allows consumers to live stream their gaming activity to the world. It’s an interesting idea, but one that doesn’t excite me personally.
Alas, I’m not the target audience for Twitch. And over 55 million visitors per month, with an average age of 21 years old, would agree. You see, it turns out people like to watch other people play video games. And that’s what Twitch enables. That 55 million visitors gives it the fourth-largest source for U.S. internet traffic.
What’s even more impressive is that, according to the company, 58% of users spend over 20 hours a week on the site. That’s some loyalty and some eyeballs. In a day and age where consumers can literally choose almost anything to watch, they are choosing to watch other people play video games. What a world.
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $202.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 41 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $235.77 (16.2% Upside)
One of the best parts about investing in the video game industry is that you don’t have to be a gamer to understand the profit potential of this sector. If you watch Netflix, or use Roku, essentially if you are participating in the digital economy in any way, you can understand why this market is so attractive.
Subscriptions, streaming services, and loyalty programs are all pieces of the digital economy. And they’re all available in one form or another with video game companies. The companies in this presentation do not represent the entire video game market, but they do represent some of the largest players in the arena.
The Covid-19 pandemic will have repercussions for the economy for years. And one of those repercussions is that it accelerated the shift in how many consumers choose to consume content. And that includes the way gamers play individually and online. No live sports? We’ve got esports.
Or you can simply go online and play games with friends, or compete with complete strangers.
All of this was in place before the pandemic, but the trends have been accelerated, and they are unlikely to go backwards.
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