Investments in computing power and AI chips are enhancing the metaverse experience and driving demand for interactive games, making the video game sector a compelling investment opportunity. Therefore, investors should consider keeping an eye on strong video game stocks like Tencent Holdings Limited (TCEHY) and Electronic Arts Inc. (EA), as the metaverse gains momentum.
This year, Metaverse Gaming is booming due to consumer demand for immersive experiences, advancements in VR/AR technologies, blockchain integration, a strong gaming culture, increasing incomes, and accelerated adoption of digital entertainment post-COVID-19. The market is projected to achieve a remarkable CAGR of 41.64% from 2024 to 2030, reaching an estimated volume of $168.4 billion by 2030.
Likewise, AI enhances user engagement and content creation in virtual worlds, transforming the gaming industry. It empowers smaller studios to develop expansive game worlds with high-quality graphics and dynamic content in the metaverse. As a result, the video game market is projected to generate $282.30 billion, with a CAGR of 8.76% through 2027, reaching an estimated market volume of $363.20 billion.
Furthermore, the growth of mobile gaming and the rise of e-sports have boosted market optimism. Considering these favorable trends, let’s examine the fundamentals of two video game stock picks.
Tencent Holdings Limited (TCEHY)
Headquartered in Shenzhen, People's Republic of China, TCEHY is an investment holding company that offers value-added services (VAS), online advertising, fintech, and business services internationally. It operates through VAS, Online Advertising, FinTech, Business Services, and Others segments.
In terms of the trailing-12-month Return on Common Equity, TCEHY’s 18.64% is 467.5% higher than the 3.28% industry average. Likewise, its 30.44% trailing-12-month EBIT margin is 230.3% higher than the 9.21% industry average. Furthermore, its 24.23% trailing-12-month net income margin is 683.4% higher than the 3.09% industry average.
In the second quarter that ended June 30, 2024, TCEHY’s total revenues increased 8% year-over-year to RMB161.12 billion ($22.78 billion). Its gross profit grew 21.3% from the prior year’s quarter to RMB85.90 billion ($12.14 billion).
For the same quarter, the company's non-IFRS profit attributable to equity holders of the company rose 52.6% year-over-year to RMB57.30 billion ($8.10 billion). Also, its EPS for profit attributable to equity holders of the company stood at RMB6.01, up 85.3% over the prior-year quarter.
For the quarter ended September 30, 2024, TCEHY’s EPS and revenue are expected to increase 37.6% and 12.5% year-over-year to $0.88 and $24 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, TCEHY’s stock has gained 66.9% to close the last trading session at $62.35.
TCEHY’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B grade for Sentiment. It is ranked #6 out of 38 stocks in the B-rated China industry. To access the additional grades of TCEHY for Growth, Value, Momentum, and Quality, click here.
Electronic Arts Inc. (EA)
EA 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, and licenses games from others.
On October 4, 2024, EA announced the global release of EA SPORTS NHL 25. The game features a new ICE-Q gameplay system, an improved Franchise Mode, and enhanced presentation, providing an immersive hockey experience on PlayStation 5 and Xbox Series X|S.
On September 27, 2024, EA launched EA SPORTS FC 25, introducing new gameplay features like Rush and FC IQ. For the first time, women's football was added to Career Mode. The event was celebrated worldwide by cover stars, enhancing the game's social experience.
In terms of the trailing-12-month net income margin, EA’s 15.77% is 410% higher than the 3.09% industry average. Likewise, its 9.06% trailing-12-month Return on Total Assets is 640.5% higher than the industry average of 1.22%. Furthermore, the stock’s 19.22% trailing-12-month levered FCF margin is 140.6% higher than the industry average of 7.99%.
For the first quarter that ended June 30, 2024, EA’s total net revenue and gross profit stood at $1.66 billion and $1.40 billion, respectively. Similarly, the company’s income came in at $364 million. Moreover, its net income was $280 million, or $1.04 per share.
Analysts expect EA’s EPS for the quarter ended September 30, 2024, to increase 10% year-over-year to $2.01. Likewise, its revenue for the same quarter is expected to increase 11.5% year-over-year to $2.03 billion. Over the past year, the stock has gained 16.2% to close the last trading session at $142.90.
It’s no surprise that EA has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Quality. It is ranked #4 out of 18 stocks in the B-rated Entertainment - Toys & Video Games industry. Beyond what we stated above, we also have given EA grades for Growth, Value, Momentum, Stability, and Sentiment. Get all EA ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TCEHY shares were trading at $56.76 per share on Tuesday afternoon, down $5.59 (-8.97%). Year-to-date, TCEHY has gained 51.32%, versus a 21.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
2 Video Game Stocks to Watch as the Metaverse Gains Momentum StockNews.com
