The video gaming industry is expected to witness substantial growth in the upcoming years, thanks to the growing preference for online gaming, the increasing popularity of esports, advances in technology to enhance the real-time rendering of graphics, and the rising availability of high-speed internet globally.
Given the industry’s bright growth prospects, investors could consider buying fundamentally sound video gaming stocks Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA), and Nexters Inc. (GDEV) this week.
Before diving deeper into the fundamentals of these stocks, let’s first discuss what’s happening in the gaming industry and why it could be wise to invest in these video gaming stocks.
The video gaming industry remains a lucrative market with solid growth potential, driven by growing popularity of mobile and online gaming, the rise of esports and game events, and increasing availability of high-speed internet worldwide. The advent of 5G technology will revolutionize the gaming landscape.
With 5G networks, cloud gaming platforms can deliver high-quality gaming experiences with lower latency and faster load times. Also, it can accommodate multiplayer games (of significantly high numbers) with concurrent players, without any lag or glitch.
Furthermore, the gaming industry should benefit from the availability of top, next-generation gaming consoles, including the Xbox Series X and the PS5, which provide an improved gaming experience to the users. Moreover, innovation and technological proliferation in both gaming software and hardware reflect the industry’s promising growth prospects.
With the expansion of immersive technologies, such as AI and VR&AR in games, the integration of high-quality graphics along with sound effects enhances the gaming experience.
According to a report by Grand View Research, the global video game market is expected to reach $583.69 billion, growing at a 12.9% CAGR. Investors’ interest in the gaming stocks is evident from the VanEck Vectors Gaming ETF’s (BJK) 16% gains over the past six months.
Let’s take a closer look at the fundamentals of the featured stocks:
Activision Blizzard, Inc. (ATVI)
ATVI 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. Its key product franchises include Call of Duty, Diablo, Hearthstone, World of Warcraft, Overwatch League, and Candy Crush.
On April 4, ATVI and Valve, L.L.C., a premier PC game developer, jointly announced a strategic partnership that grants Activision exclusive worldwide publishing rights to upcoming games created by Valve. Under the agreement, ATVI has acquired the publishing rights to Day of Defeat, a multiplayer game powered by Valve’s Half-Life technology.
This partnership would expand the company’s PC portfolio.
In terms of the trailing-12-month gross profit margin, ATVI’s 70.43% is 41.5% higher than the 49.77% industry average. The stock’s trailing-12-month EBIT margin of 24.41% is 199.9% higher than the 8.14% industry average. In addition, its 22.82% trailing-12-month net income margin is 675.7% higher than the industry average of 2.94%.
ATVI’s non-GAAP net revenues increased 34.8% year-over-year to $2.38 billion for the first quarter that ended March 31, 2023. 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-over-year to $866 million. In addition, its non-GAAP EPS came in at $1.09, a 70.3% increase from the prior-year quarter.
The consensus revenue estimate of $9.48 billion for the fiscal year (ending December 2023) reflects an 11.3% year-over-year improvement. Likewise, the consensus EPS estimate of $3.96 for the ongoing year indicates a 16.1% rise year-over-year. Moreover, the company surpassed its consensus revenue estimates in all four trailing quarters, which is impressive.
In addition, analysts expect ATVI’s revenue and EPS for the fiscal year 2024 to grow 2% and 7.1% year-over-year to $9.67 billion and $4.24, respectively. Over the past six months, the stock has gained 3.9% to close the last trading session at $77.04.
ATVI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ATVI has a B grade for Growth and Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #7 of 22 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see ATVI’s ratings for Stability, Value, Sentiment, and Momentum here.
Electronic Arts Inc. (EA)
EA develops, markets, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets globally. It develops games and services across various genres, including sports, racing, action, role-playing, and simulation mainly under the Battlefield, The Sims, Need of Speed, and license games from 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 grow new football experiences, connecting hundreds of millions of fans through console, mobile, online, and esports products. The company might benefit significantly from this new brand.
On February 3, EA announced that EA SPORTS™ signed a partnership with two-time reigning Formula 1® World Champion Max Verstappen. Under the agreement, the Oracle Red Bull Racing driver will collaborate with the brand to create content across the EA SPORTS portfolio. Also, the EA SPORTS brand has been added to Verstappen’s 2023 season race helmet.
EA’s trailing-12-month gross profit margin of 75.87% is 52.4% higher than the industry average of 49.77%. Likewise, the stock’s trailing-12-month EBITDA and net income margins of 26.65% and 10.80% compare to the respective industry averages of 17.85% and 2.94%.
For the fourth quarter that ended March 31, 2023, EA’s net revenue grew 2.7% year-over-year to $1.87 billion. Its gross profit was $1.43 billion, up 1.4% year-over-year. Net bookings for the quarter stood at $1.95 billion, an increase of 11% year-over-year, and live services and other net bookings rose 9% from the prior-year period to $1.62 billion. Also, the net cash provided by operating activities was $617 million.
Analysts expect revenue and EPS for the fiscal year (ending March 2024) to increase by 3.1% and 5% year-over-year to $7.57 billion and $6.80, respectively. Moreover, the company surpassed its consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Additionally, the consensus revenue EPS estimate of $8.31 billion and $7.68 for the fiscal year 2025 indicates an improvement of 9.9% and 13.1% year-over-year, respectively. Shares of EA have gained 4% over the past year to close the last trading session at $125.32.
EA’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
EA has a grade B for Quality and Sentiment. In the 22-stock Entertainment - Toys & Video Games industry, it is ranked #6.
Beyond what we stated above, we also have EA’s ratings for Stability, Growth, Value, and Momentum. Get all EA ratings here.
Nexters Inc. (GDEV)
GDEV operates as a game development company worldwide. It is headquartered in Limassol, Cyprus. The company develops desktop, mobile, web, and social games.
GDEV’s trailing-12-month gross profit margin of 67.33% is 35.3% higher than the industry average of 35.27%. And the stock’s trailing-12-month EBITDA margin of 26.29% is 47.3% higher than the 17.85% industry average. Also, its trailing-12-month net income margin of 20.49% is significantly higher than the industry average of 2.94%.
GDEV’s revenue increased 8% year-over-year to $125 million in the third quarter that ended September 30, 2022. Its platform commissions grew 10% year-over-year, generally in line with the revenue increase. Also, the company’s adjusted EBITDA totaled $55 million, up 292.9% year-over-year. Cash flow generated from operating activities was $60 million, an increase of 17% year-over-year.
Shares of GDEV have gained 104.3% over the past month and 33.2% over the past year to close the last trading session at $8.50.
GDEV’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
GDEV has a B grade for Quality, Value, and Sentiment. The stock also has a B grade for Quality. It is ranked #4 out of 22 stocks in the same industry.
To access additional ratings for GDEV’s Growth, Stability, and Momentum, click here.
What To Do Next?
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ATVI shares fell $77.04 (-100.00%) in premarket trading Friday. Year-to-date, ATVI has gained 0.64%, versus a 8.18% rise in the benchmark S&P 500 index during 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 her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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