The macroeconomic issues of the previous year affected gaming spending. However, online gaming has become a significant global source of pleasure and entertainment that appeals to people of all ages and provides opportunities for teamwork and stress release.
Thanks to technological improvements and accessibility, the gaming sector is well-positioned for expansion. Amid this backdrop, it could be wise to add fundamentally strong entertainment stocks Activision Blizzard, Inc. (ATVI), Nintendo Co., Ltd. (NTDOY), Flutter Entertainment plc (PDYPY), and PLAYSTUDIOS, Inc. (MYPS) to one’s watchlist.
Before diving deeper into their fundamentals, let’s take a closer look at what’s happening in the gaming industry.
Even though the pandemic changed how businesses work, the gaming industry did well during the pandemic. It significantly influenced new players' purchases of consoles and video games. The gaming industry has changed from a casual, irregular pastime to a more serious, regular interest.
The mobile gaming market is expected to grow from $141.71 billion in 2023 to $300.47 billion by 2028, exhibiting a growth of about 16.2% CAGR.
Growing internet penetration, faster connectivity through 5G, and the emergence of advanced technologies like artificial intelligence (AI), augmented reality (AR), and virtual reality (VR), as well as the popularity of eSports and mobile and online gaming, are all contributing to the expansion of the gaming industry.
By 2030, the worldwide gaming market is projected to grow at a CAGR of 13.1% to reach $665.77 billion. The VanEck Vectors Gaming ETF's (BJK) 19% returns over the past year demonstrates investors' interest in gaming stocks.
Let's take a closer look at the fundamentals of the featured stocks.
Activision Blizzard, Inc. (ATVI)
ATVI and its subsidiaries develop and publish 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.
On August 1, 2023, ATVI announced the launch of the TITANS expansion for Hearthstone, featuring 145 new cards, 11 Legendary Titan minions, the Forge keyword, and the return of the Magnetic keyword. The expansion brings arcane magic and ancient technologies from the TITANS to the game.
Additionally, a new creative mode called Twist will be introduced on September 1, offering unique gameplay variants.
In terms of the trailing-12-month EBITDA margin, ATVI’s 26.67% is 45.1% higher than the 18.38% industry average. Likewise, its 24.88% trailing-12-month net income margin is 590.3% higher than the 3.60% industry average. Furthermore, its 25.58% trailing-12-month EBIT margin is 200.8% higher than the 8.50% industry average.
ATVI’s net revenues for the second quarter ended June 30, 2023, increased 34.2% year-over-year to $2.21 billion. The company’s operating income rose 72.5% year-over-year to $583 million. Its non-GAAP net income increased 90.5% year-over-year to $724 million. Its non-GAAP EPS came in at $0.91, representing an increase of 89.6% year-over-year.
Street expects ATVI’s EPS and revenues for the fiscal year ending September 30, 2023, to increase 31.5% and 14.6% year-over-year to $0.89 and $2.10 billion, respectively. ATVI surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 19.8% year-to-date to close the last trading session at $91.74.
ATVI’s strong fundamentals 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 a B grade for Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #6 out of 19 stocks. To see ATVI’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Nintendo Co., Ltd. (NTDOY)
Headquartered in Kyoto, Japan, NTDOY develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It also offers video game platforms, playing cards, Karuta, other products, handheld and home console hardware systems, and related software.
In terms of the trailing-12-month EBIT margin, NTDOY’s 33.50% is 294% higher than the 8.50% industry average. Likewise, its 17.29% trailing-12-month levered FCF margin is 126.8% higher than the 7.62% industry average. Furthermore, the stock’s 28.18% trailing-12-month net income margin is 682.1% higher than the 3.60% industry average.
NTDOY’s net sales for the first quarter ended June 30, 2023, increased 50% year-over-year to ¥461.34 billion ($3.18 billion). Its operating profit increased 82.4% over the prior-year quarter to ¥185.44 billion ($1.28 billion). The company’s profit attributable to owners of parent rose 52.1% year-over-year to ¥181.02 billion ($1.25 billion). In addition, its profit per share came in at ¥155.48, representing an increase of 52.7% year-over-year.
For fiscal 2024, NTDOY’s revenue is expected to increase 4.1% year-over-year to $10.85 billion. Over the past six months, the stock has gained 7.1% to close the last trading session at $10.61.
NTDOY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth. It is ranked #7 in the same industry. Click here to see NTDOY’s ratings for Value, Momentum, Stability, and Sentiment.
Flutter Entertainment plc (PDYPY)
Based in Dublin, Ireland, PDYPY operates as a sports betting and gaming company in the United Kingdom, Ireland, Australia, the United States, and internationally. The company operates through four segments: UK & Ireland, Australia, International, and US.
On July 30, 2023, PDYPY and FOX have announced the closure of FOX Bet, a sports betting platform, in a phased manner between July 31 to August 31, 2023. PDYPY will hold onto PokerStars and FanDuel, while FOX will preserve the FOX and FOX Bet brands for potential future deployment.
FOX Bet contributed less than 3% of PDYPY's substantial $3.30 billion U.S. revenue last year. FOX Bet and PokerStars brands were responsible for $91 million loss out of the total U.S. loss of $313 million. The closure of Fox Bet will help cut losses between half and two-thirds.
In terms of the trailing-12-month gross profit margin, PDYPY’s 58.10% is 64.5% higher than the 35.32% industry average. Likewise, its 11.35% trailing-12-month levered FCF margin is 133.3% higher than the 4.86% industry average. Furthermore, the stock’s 11.48% trailing-12-month EBITDA margin is 6.6% higher than the 10.77% industry average.
PDYPY’s revenues for six months ended June 30, 2023, rose 41.9% year-over-year to £4.81 billion ($6.11 billion). Its gross profit rose 37.6% year-over-year to £2.80 billion ($3.56 billion). Its operating profit increased significantly year-over-year to £214 million ($271.95 million).
The company’s adjusted profit after tax rose 138% year-over-year to £420 million ($533.73 million). Also, its adjusted EPS came in at 237.5p, representing an increase of 144% year-over-year.
Analysts expect PDYPY’s EPS and revenues for the fiscal period ending December 31, 2023, to increase 154.8% and 33.8% year-over-year to $2.88 and $12.31 billion, respectively. Over the past year, the stock has gained 38.8% to close the last trading session at $89.10.
PDYPY’s promising outlook is reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Momentum, Stability, and Sentiment. Within the Entertainment - Toys & Video Games industry, it is ranked #8. To see additional POWR Ratings for Value and Quality for PDYPY, click here.
PLAYSTUDIOS, Inc. (MYPS)
MYPS develops and publishes free-to-play casual games for mobile and social platforms in the United States, North America, and internationally.
On May 4, 2023, MYPS announced a licensing deal with IGT, allowing them to use IGT's content in their chance-based mobile games. Titles like "Money Mania Pharaoh’s Fortune," and "Wheel of Fortune Cash Link Australian Outback" will be added to myVEGAS Slots.
MYPS’ Co-Founder and Head of Product Katie Bolich said, “To have the opportunity to work with IGT and bring their proven content and game models to our casual, free-to-play audience is a win-win.”
In terms of the trailing-12-month gross profit margin, MYPS’s 73.54% is 49% higher than the 49.37% industry average. Likewise, its 0.91x trailing-12-month asset turnover ratio is 88.3% higher than the 0.48x industry average.
For the fiscal second quarter ended June 30, 2023, MYPS’s net revenue increased 13.8% year-over-year to $77.79 million. Its loss from operations narrowed 67% year-over-year to $1.85 million. The company’s AEBITDA rose 121.5% year-over-year to $16.27 million. Its average DAU (Daily Active Users) increased 148.5% year-over-year to 3,651,000.
For the quarter ending September 30, 2024, MYPS’s revenue is expected to increase 7.5% year-over-year to $77.56 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 4.9% to close the last trading session at $3.66.
MYPS’s POWR Ratings are consistent with its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment. It is ranked #5 in the same industry. In total, we rate MYPS on eight different levels. Beyond what we stated above, we also have given MYPS grades for Growth, Momentum, Stability, and Quality. Get all the MYPS’s ratings here.
What To Do Next?
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ATVI shares were trading at $91.59 per share on Thursday afternoon, down $0.15 (-0.16%). Year-to-date, ATVI has gained 20.94%, versus a 15.92% 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.
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