Thanks to remote lifestyles, the video gaming industry has achieved significant growth since the onset of the COVID-19 pandemic. With changing lifestyles, the sheer convenience and engaging content of video games should help companies in this space witness strong user demand in the near term. Goldman Sachs Research’s video games analyst, Chris Merwin, said, “Major franchises now offer regular content updates to keep players engaged and spending on things like virtual goods that enhance gameplay.”
Furthermore, technological advancements with respect to mobile gaming have also generated significant consumer engagement. According to Research and Markets, the global market for video games is projected to grow at a 9.3% CAGR from 2020 - 2027.
Therefore, we think investors looking to benefit from the industry’s growth could bet on the stocks of fundamentally strong video game companies Electronic Arts Inc. (EA) and Playtika Holding Corp. (PLTK).
Electronic Arts Inc. (EA)
EA in Redwood City, Calif., 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.
On Feb. 1, 2022, Andrew Wilson, EA’s CEO, said, “Our network of more than 540 million unique active accounts continues to expand, players are spending more time in our games, and with our amazing IP we are well-positioned for continued growth.”
EA’s net revenue came in at $1.79 billion for its fiscal 2022 third quarter, ended Dec. 31, 2021, up 6.9% year-over-year. Its gross profit came in at $1.16 billion, up 8% year-over-year. Also, its net cash provided by operating activities was $1.53 billion, up 36.5% year-over-year.
Analysts expect EA’s revenue to increase 20.8% to $7.48 billion in its fiscal 2022. Its EPS is estimated to increase 20% to $6.9 in 2022. Also, the stock surpassed EPS estimates in three of the trailing four quarters. The stock has declined 2.4% in price over the past month to close yesterday’s trading session at $123.31.
EA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Value and Quality. It is ranked #6 of 23 stocks in the Entertainment - Toys & Video Games industry. Click here to see the additional ratings for EA (Growth, Momentum, Stability, and Sentiment).
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK develops mobile games in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. The company owns a portfolio of casual and casino-themed games.
On March 23, 2022, PLTK announced the acquisition of Israel-based JustPlay.LOL, creator of the multiplayer game 1v1.LOL. Eric Rapps, PLTK’s Chief Strategy Officer, said, “The acquisition of JustPlay.LOL and its leading title, 1v1.LOL, continues our strategy of diversifying the game genres we operate in as we leverage our industry-leading game operations technology to grow revenue via our Boost Platform.”
For the fourth quarter, ended Dec. 31, 2021, PLTK’s revenues increased 13.2% year-over-year to $649 million. Its net income came in at $102.30 million, up 34.6% year-over-year. Furthermore, the company’s adjusted EBITDA came in at $212.50 million, compared to $210.40 million in the previous period.
PLTK’s revenue is expected to increase 9.6% to $2.83 billion in its fiscal 2022. Its EPS is estimated to increase 22.9% per annum for the next five years. The stock has gained 5.7% in price year-to-date to close yesterday’s trading session at $18.27.
It is no surprise that PLTK has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has a B grade for Value and Quality.
PLTK is ranked first in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings for PLTK (Growth, Momentum, Stability, and Sentiment).
EA shares were trading at $125.56 per share on Thursday morning, up $2.25 (+1.82%). Year-to-date, EA has declined -4.68%, versus a -5.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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