The video game industry is well positioned for significant long-term growth, driven by the growing popularity of online gaming, the rise of esports, the proliferation of technology in software and hardware, and the increasing availability of the Internet. Given the wind in the industry, high-end video game stocks from Activision (ATVI), Electronic Arts (EA) and Nexters (GDEV) could be the perfect buys this week. Read more….
The video game industry is expected to see significant growth in the coming years thanks to the growing preference for online gaming, the growing popularity of esports, technological advancements improving real-time graphics rendering, and the increasing availability of high-speed internet around the world.
Given the industry’s strong growth outlook, investors may consider buying broadly solid video game stocks this week, Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA) and Nexters Inc. (GDEV).
Before we dive into the basics of these stocks, let’s first discuss what’s going on in the gaming industry and why you should invest in these video game stocks.
The video game industry remains a lucrative market with solid growth potential, driven by the growing popularity of mobile and online gaming, the growth of esports and gaming events, and the increasing availability of high-speed internet around the world. The advent of 5G technology will revolutionize the gaming landscape.
Thanks to 5G networks, cloud gaming platforms can deliver a high-quality gaming experience with lower latency and faster load times. In addition, it can accommodate multiplayer games (of significantly large numbers) with simultaneous players, without lags or glitches.
In addition, the gaming industry should benefit from the availability of the best next-generation gaming consoles, including the Xbox Series X and PS5, which provide users with a better gaming experience. Furthermore, the innovation and proliferation of technology in both gaming software and hardware reflect the industry’s promising prospects.
With the expansion of immersive technologies such as artificial intelligence and VR&AR in games, the integration of high-quality graphics along with sound effects enhances the gaming experience.
According to the report of Grand View Research, the global video game market is expected to reach USD 583.69 billion, with a CAGR increase of 12.9%. Investor interest in gaming stocks is driven by a 16% gain in the VanEck Vectors Gaming (BJK) ETF over the last six months.
Let’s take a closer look at the basics of the presented actions:
Activision Blizzard, Inc. (ATVI)
ATVI develops and publishes interactive content and entertainment services in the Americas, Europe, Middle East, Africa and Asia-Pacific. The company operates in three segments: Activision; Blizzard; and King. Its key product franchises include Call of Duty, Diablo, Hearthstone, World of Warcraft, Overwatch League, and Candy Crush.
On April 4, ATVI and Valve, LLC, a leading video game developer, jointly announced a strategic partnership that provides Activision with exclusive worldwide publishing rights for upcoming games developed by Valve. As part of the deal, ATVI acquired the publishing rights to Day of Defeat, a multiplayer game based on Valve’s Half-Life technology.
This partnership will expand the company’s personal computing portfolio.
In terms of gross profit margin over the last 12 months, ATVI’s 70.43% is 41.5% higher than the industry average of 49.77%. The stock EBIT margin over 12 months of 24.41% is 199.9% higher than the industry average of 8.14%. In addition, its 12-month net profit margin of 22.82% is 675.7% higher than the industry average of 2.94%.
For the first quarter ended March 31, 2023, ATVI’s non-GAAP net revenue increased 34.8% year-over-year to $2.38 billion. The company’s non-GAAP operating income increased 56.5% from the prior-year period to $953 million. Its non-GAAP net income increased 72.9% year-on-year to $866 million. In addition, non-GAAP earnings per share were $1.09, up 70.3% from the year-ago quarter.
The consensus revenue estimate of $9.48 billion for the fiscal year (ending December 2023) reflects an 11.3% year-on-year improvement. Similarly, the consensus estimate of EPS of $3.96 for the current year points to an increase of 16.1% year-on-year. What’s more, the company exceeded its consensus revenue estimates in all four consecutive quarters, which is impressive.
Additionally, analysts expect ATVI’s fiscal 2024 revenue and EPS to increase 2% and 7.1% year-on-year to $9.67 billion and $4.24, respectively. Over the past six months, the stock has gained 3.9%, closing the last trading session at $77.04.
ATVI’s strong foundations are reflected in the POWR ratings. Stocks have an overall B rating, which translates into a Buy with our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
ATVI is rated B for growth and quality. In Entertainment – Toys & Video Games, it ranks 7th out of 22 stocks.
In addition to the POWR ratings I just highlighted, you can see the ATVI ratings for stability, value, sentiment, and momentum here.
Electronic Arts Inc. (EA)
EA develops, sells and distributes games, content and services for game consoles, PCs, mobile phones and tablets worldwide. It creates games and services in a variety of genres, including sports, racing, action, role-playing and simulation, mainly under the Battlefield, The Sims, Need of Speed and licensing games of others such as Madden NFL, FIFA and Star Wars brands.
On April 6, EA introduced EA SPORTS FC™, the interactive future of football. FC will become EV SPORTS’ platform to create, innovate and develop new football experiences, connecting hundreds of millions of fans through console, mobile, online and esports products. The company can benefit greatly from this new brand.
On February 3, EA announced that EA SPORTS™ has signed a partnership deal with the two-time Formula 1 champion® world champion Max Verstappen. Under the agreement, the Oracle Red Bull Racing driver will work with the brand to create content across the entire EA SPORTS portfolio. In addition, the EA SPORTS branding has been added to Verstappen’s 2023 racing helmet.
EA’s 12-month gross profit margin of 75.87% is 52.4% higher than the industry average of 49.77%. Similarly, the rolling 12-month EBITDA and Net Earnings margins of 26.65% and 10.80% share are comparable to the respective industry averages of 17.85% and 2.94%.
In the fourth quarter ended March 31, 2023, EA’s net revenue increased 2.7% year-on-year to $1.87 billion. Its gross profit was $1.43 billion, up 1.4% year-on-year. Net bookings for the quarter were $1.95 billion, up 11% year-on-year, while live services and other net bookings were up 9% year-on-year to $1.62 billion. Net cash from operations also amounted to $617 million.
Analysts expect revenue and EPS for the fiscal year (ending March 2024) to increase 3.1% and 5% year-on-year to $7.57 billion and $6.80, respectively. Moreover, the company exceeded its consensus estimates of revenue and EPS in all four consecutive quarters, which is impressive.
In addition, consensus estimates of EPS revenues of $8.31 billion and $7.68 in fiscal 2025 indicate an improvement of 9.9% and 13.1% year-on-year, respectively. EA shares have gained 4% over the past year, closing the last trading session at $125.32.
POWR EA’s ratings reflect a solid outlook. Stocks have an overall B rating, equivalent to Buy on our proprietary rating system.
EA is rated B for quality and moods. In an industry of 22 stocks – entertainment – toys and video games, it ranks 6th.
In addition to what we said above, we also have EA ratings for Stability, Growth, Value, and Momentum. Here you will find all EA ratings.
Nexters Inc. (GDEV)
GDEV operates as a worldwide game development company. Its headquarters are in Limassol, Cyprus. The company develops computer, mobile, web and social games.
GDEV’s 12-month gross profit margin of 67.33% is 35.3% higher than the industry average of 35.27%. And the 12-month EBITDA margin of 26.29% is 47.3% higher than the industry average of 17.85%. In addition, the net profit margin over 12 months of 20.49% is well above the industry average of 2.94%.
GDEV revenue increased 8% year-on-year to $125 million in the third quarter ended September 30, 2022. Platform commissions increased 10% year-on-year, broadly in line with revenue growth. The company’s adjusted EBITDA was also USD 55 million, up 292.9% year-on-year. Cash flow generated from operations was $60 million, up 17% year-on-year.
GDEV shares are up 104.3% over the past month and 33.2% over the past year, closing the last trading session at $8.50.
POWR GDEV ratings reflect promising prospects. Stocks have an overall B rating, which translates into a Buy with our proprietary rating system.
GDEV is rated B in quality, value and sentiment. The photo is also rated B quality. It ranks 4th out of 22 stocks in the same industry.
To access additional GDEV Growth, Stability and Momentum ratings, please click here.
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ATVI shares fell $77.04 (-100.00%) in pre-market trading on Friday. ATVI has gained 0.64% year-to-date, compared with the S&P 500’s 8.18% gain over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using its fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the fundamental factors before making investment decisions.
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