Due to COVID-19, the video game industry has been booming, and with further lockdowns looming are these three stocks a good buy?
Feb. 3, 2021
During the pandemic, consumer spending on gaming increased by 39%, with millennial and Gen Z gamers leading the way. As the industry’s growth accelerates, we delve into three stocks to buy ahead of further lockdowns.
Take-Two Interactive (NASDAQ: TTWO) is the business behind some of the biggest gaming franchises, including “Grand Theft Auto” (GTA) and “NBA 2K”.
In Q2 of fiscal 2021 revenue was $841.1 million compared to $857.8 million for the year prior. However, digital revenue increased by 56% and accounted for just under two-thirds of the total revenue in the quarter, largely driven by “NBA 2K”, “GTA Online” and “GTA V — 7 years after its release”. Net income also increased in Q2 to $99 million up from $72 million the year prior primarily due to lower marketing expenses. Results in Q2 were better than expected, and management is anticipating a record $3 billion in net bookings in fiscal 2021.
Take-Two also owns two mobile publishers Social Point and PlayDots to tap into the rapidly growing mobile market and has plans to release 21 games for this market in the next few years. E-sports is another exciting avenue for growth, and it has hosted tournaments for over 92,000 players on “NBA 2K” but is currently unprofitable.
Activision Blizzard (NASDAQ: ATVI) is the producer of well-known titles such as ‘Call of Duty’ and ‘World of Warcraft’.
Activision beat analyst expectations last quarter with total revenue coming in at $1.95 billion, driven by growth across all three segments.
Activision was the best-performing segment in the quarter after growing 270% year-over-year (YoY) to $773 million, after successfully capitalizing on the rise in battle-royale game popularity and in-game purchases — total hours played is approximately seven times higher YoY.
Its Blizzard segment grew by 4% YoY fueled by ‘World of Warcraft’ which fosters a sense of nostalgia in its older users. The mobile segment, ‘King’, is predominantly driven by ‘Candy Crush’ but has several other franchises such as ‘Farm Heroes’ and ‘Bubble Witch’ which continue to grow year-over-year. This segment has over 249 million users and is the second-largest revenue driver with revenue rising 7% in Q3.
Activision is strongly positioned to benefit from gaming trends and prosper for many years to come.
Unity Software (NYSE: U) is a game engine that facilitates the development, operation, and monetization of video games across many platforms and has 2.5 billion monthly active end users. It is more of a pick and shovel play on the industry’s growth as it is not reliant on a single developer.
Unity makes money through both its Create and Operate solutions. Create solutions allows developers to develop real-time 2D and 3D games and applications, while Operate solutions is a portfolio of products that enables content developers to grow and monetize users.
Unity went public in late 2020 and has had an excellent start to life on the public markets, reporting revenue growth of 53% YoY to $200.8 million in Q3 in its inaugural report. The number of customers spending greater than $100,000 increased by 70% to 739. The stickiness of its business is demonstrated by its dollar-based net expansion rate of 144%.
Its business goes beyond gaming and is used in architecture, engineering, film making, and more. This means that its total addressable market is in the region of $29 billion and leaves an enormous opportunity for growth.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.