The gaming industry is growing with the increasing use of smartphones and the adoption of advanced technologies. However, persistent macroeconomic difficulties may limit its short-term growth. Therefore, while we believe that the fundamentally strong stock of Playtika Holding (PLTK) may be worth buying now, Roblox (RBLX) could best be avoided. Read.
The gaming market is growing rapidly with the increase in the use of smartphones and the easy availability of free games. Moreover, the growing popularity of esports and gaming events is fueling the industry.
The industry is also known for its ability to weather economic downturns. However, as macroeconomic headwinds intensify, the gaming industry may not be as recession-proof as experts in the past believed.
While we believe that Playtika Holding Corp.’s fundamentally strong gaming stocks (PLTK) may be worth buying, it would be best to avoid Roblox Corporation (RBLX) given its fundamental weakness.
The global gaming market is expected to grow at a CAGR of around 7.1% between 2023 and 2030, driven by recent advances in graphics engines, information technology and cloud gaming.
Cloud gaming is growing in popularity and is already valued at $244 million. The market is expected to reach nearly $22 billion by 2030.
But with economies around the world experiencing soaring inflation and central banks aggressively raising interest rates, other issues, including delays in game and title releases, pose major hurdles for the industry.
Additionally, game publishers relying on proven content rather than creating new games can hinder growth prospects.
Stocks to buy:
Playtika Holding Corp. (PLTK)
Based in Herzliya Pituach, Israel, PLTK develops mobile games in the United States and around the world. The company has a portfolio of casual and casino-themed games.
PLTK’s future EV/EBITDA of 6.27x is 25.8% lower than the industry average of 8.45x. Its future non-GAAP P/E of 10.08 is 38.4% lower than the industry average of 16.37.
PLTK operating income increased by 14.6% year-on-year to USD 128.3 million in the fourth quarter ended December 31, 2022. Credit-adjusted EBITDA increased by 15% year-on-year to USD 202.60 million, while total revenue increased by 3.9% year-over-year to USD 106.40 million.
Analysts expect PLTK’s EPS for the fiscal year ending December 2023 to be $0.78, up 12.6% year-on-year. The company’s revenue is expected to be $2.59 billion.
The stock has gained 9.4% since the beginning of the year, closing the last trading session at $9.31.
PLTK’s POWR ratings reflect promising prospects. Stocks have an overall A rating, which is a strong buy in our proprietary rating system. POWR ratings are calculated based on 118 different factors, each weighted to an optimal degree.
PLTK is also rated A for value and B for quality and stability. Ranked #2 out of 20 in Entertainment – Toys & Video Games.
To access PLTK’s additional Sentiment, Growth, and Momentum ratings, click here.
Shares to sell:
Roblox Corporation (RBLX)
RBLX develops and operates an online entertainment platform. The company offers Roblox Studio, a free toolkit that enables developers and creators to create, publish and maintain 3D experiences and other content; Roblox Client, an application that allows users to explore a digital 3D world; Roblox Education for learning; and Roblox Cloud, which provides the services and infrastructure that power a platform for people’s shared experience.
Future RBLX EV/Sales of 7.09x is 271.1% higher than the industry average of 1.91x. Its futures price/sale multiple of 7.52 is 497.7% higher than the industry average of 1.26.
RBLX revenue was $579.04 million in the fourth quarter ended December 31, 2022. The company’s net loss attributable to ordinary shareholders increased 102.3% year-on-year to $289.93 million. Net loss per share increased 92% year-over-year to $0.48 compared to the prior-year quarter.
Street expects EPS RBLX to decline 51% year-on-year to minus $0.41 for the current quarter ending March 2023. Its revenue is expected to be $757.60 million for the same quarter.
The stock has fallen 12.3% over the last six months to close at $39.94 in the last trading session.
The POWR RBLX ratings reflect this bleak outlook. The stock is rated F overall, corresponding to strong selling in our proprietary rating system.
RBLX is also rated F for Stability and D for Value, Growth and Quality. It ranks last in the same industry.
In addition to the POWR ratings we listed above, you can see the RBLX rating for Momentum and Sentiment here.
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