The gaming industry is undergoing a transformation driven by the rise of Augmented Reality (AR) and the booming popularity of eSports. The widespread global appeal of video games will likely continue, allowing top game companies multiple opportunities to draw new players and boost sales in developed and growing markets.
Amid this backdrop, investors looking to capitalize on the trend may not want to miss the opportunity to invest in strong gaming stocks like Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), and DoubleDown Interactive Co., Ltd. (DDI).
The video game industry is a titan in the global entertainment and media (E&M) sector, with more and more companies focusing on subscription-based models and cloud gaming platforms. This digital shift in the video gaming sector is continuing to gain momentum, with publishers taking home $136 billion of the $262 billion video game market, where PC & console and mobile capture $48 billion and $87 billion, respectively.
With technological advancements reshaping the gaming industry, analysts expect this sector to thrive over the next decade. The global video games market is projected to reach a volume of $363.20 billion by 2027, exhibiting a CAGR of 8.8%. Further, the augmented reality gaming market is anticipated to reach $43.34 billion by 2031, growing at a CAGR of 21.9%.
Moreover, eSports, an organized and competitive video gaming industry, has become a cultural phenomenon, attracting casual and hardcore gamers. According to Statista reports, by 2025, the number of viewers for eSports is expected to be over 318 million.
Considering these encouraging trends, let’s take a look at the fundamentals of the Entertainment - Toys & Video Games industry stocks, beginning with the third choice.
Stock #3: Electronic Arts Inc. (EA)
EA is a digital interactive entertainment company that 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.
On October 4, EA globally launched EA SPORTS NHL 25, featuring the new ICE-Q gameplay system, a revamped Franchise Mode with enhanced presentation, delivering an engaging hockey experience on PlayStation 5 and Xbox Series X|S.
In the fiscal first quarter that ended on June 30, 2024, EA’s revenue and gross profit stood at $1.66 billion and $1.40 billion, respectively. The company’s net income came in at $280 million, while its earnings per share stood at $1.04 for the period.
According to the business outlook for fiscal year 2025, the company’s net revenue is projected to be between $7.10 billion and $7.50 billion, with operating cash flow anticipated to range from $2.05-$2.25 billion. EA anticipates its net income to fall between $904 million and $1.09 billion.
Street expects EA’s revenue for the fiscal second quarter (ended September 2024) to increase 11.5% year-over-year to $2.03 billion. Its EPS for the same period is expected to register a 10% growth from the prior year, settling at $2.01.
EA’s stock has surged 14.9% over the past six months and 10.8% over the past year to close the last trading session at $144.35.
EA’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EA has a B grade for Sentiment and Quality. It is ranked #5 out of 18 stocks in the B-rated Entertainment - Toys & Video Games industry. Click here to see the additional ratings for EA (Growth, Value, Momentum, and Stability).
Stock #2: Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituach, Israel, PLTK is a mobile game developer. The company owns a portfolio of 15 casual and social casino-themed games. It distributes its games to end customers through various web and mobile platforms and direct-to-consumer platforms.
On September 18, PLTK agreed to acquire SuperPlay, a mobile gaming company, for $700 million, with potential additional payments of up to $1.25 billion based on performance. This agreement should strengthen PLTK’s leadership and enhance its mobile gaming portfolio by leveraging SuperPlay’s proven expertise and successful titles.
PLTK’s revenue for the second quarter (ended June 30, 2024) came in at $627 million. Its income from operations grew marginally from the prior year’s quarter to $140.70 million. The company’s net income amounted to $86.60 million and $0.23 per share, reflecting 14.4% and 9.5% year-over-year increases, respectively.
As per the fiscal year 2024 financial outlook, PLTK forecasts revenue to range between $2.52 billion and $2.62 billion. The company also expects credit adjusted EBITDA to be between $730 million and $770 million.
Analysts expect PLTK’s revenue for the fourth quarter ending December 31, 2024, to increase marginally year-over-year to $642.71 million, while its EPS for the same period is expected to grow 72.1% from the prior-year quarter to $0.17.
Over the past six months, the stock has gained 9.9%, closing the last trading session at $7.56.
PLTK’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and a B for Stability, Sentiment, and Quality. Within the same B-rated industry, it is ranked #2. Click here to see PLTK’s ratings for Growth and Momentum.
Stock #1: DoubleDown Interactive Co., Ltd. (DDI)
Based in Seoul, South Korea, DDI is principally engaged in developing and supplying online games. The company offers DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Undead World: Hero Survival games.
For the second quarter of 2024, which ended on June 30, DDI’s revenue increased 17.4% year-over-year to $88.24 million. Its operating income from operations stood at $36.19 million, indicating a 31.5% growth from the prior year’s quarter.
DDI’s net income rose 36.6% from the year-ago value to $33.27 million and its EPS stood at $0.97, up 36.2% year-over-year. It reported an adjusted EBITDA of $37 million, indicating a 34.1% growth from the prior year quarter with a margin of 41.9% (up 520 bps year-over-year).
The consensus revenue estimate of $83.93 million for the fiscal third quarter (ended September 2024) represents a 15% increase year-over-year. The consensus EPS estimate of $0.56 for the same quarter indicates a 2.8% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has surged 98.9% year-to-date and 57.4% over the past nine months to close the last trading session at $14.62.
DDI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value, Sentiment, and Quality and a B for Growth. The stock is ranked first in the Entertainment - Toys & Video Games industry. Click here to access the additional DDI ratings (Momentum and Stability).
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.
EA shares were trading at $145.25 per share on Monday afternoon, up $0.90 (+0.62%). Year-to-date, EA has gained 6.60%, versus a 23.77% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
