It is no surprise that the video gaming industry fared well during the COVID-19 pandemic-ridden 2020. Remote lifestyle and social distancing policies, combined with rising cases of coronavirus daily, motivated people to remain indoors, making online gaming one of the top choices for entertainment. The gaming industry has not only recognized the growth potential these conditions illuminated, but has capitalized on it by launching new hardware and consoles. With the launch of latest versions of PlayStation and Xbox, the overall gaming industry is estimated to have increased 9.3% year-over-year to $159.30 billion in 2020.
While global coronavirus vaccine deployment and fiscal stimulus have led to a pullback in the majority of tech and software stocks that benefited immensely from the pandemic, rising coronavirus cases globally and rising concerns about the second strain will likely lead to a trend reversal soon. Because the global economy is on the threshold of another lockdown, with japan considering declaring a state of emergency, the video gaming industry probably has plenty of upside in the upcoming months.
As the demand for video games continues to accelerate globally, companies including Nintendo Co., Ltd. (NTDOY), Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA) and Take-Two Interactive Software, Inc. (TTWO) have been developing an assortment of new video games and upgrades for some of the most popular games to broaden their customer bases. Most of these companies are witnessing a rise in their customer engagement numbers, which we think should boost their revenue and earnings growth.
Nintendo Co., Ltd. (NTDOY)
Based in Japan, NTDOY is one of the most popular companies in the entertainment products and gaming consoles industry. The company is known for its home console hardware systems, related software, and Japanese style playing cards trump and carta.
Yesterday, NTDOY announced the acquisition of Canadian video games creator Next Level Games Inc. The acquisition will allow NTDOY to leverage Next Level Games’ decades of software experience in its console systems to ramp up sales.
The company’s net sales have increased 73.3% year-over-year to ¥769.52 billion for the six months ended September 30, 2020. Operating profits have risen 209.3% from the year-ago value to ¥291.42 billion, while earnings per share has grown 243.6% from the same period last year to ¥1,789.10.
The consensus revenue estimate of $15.43 billion for the fiscal year ending March 31, 2021 indicates a 52.3% rise year-over-year. The company has an impressive revenue surprise history as well; it beat the Street Revenue estimates in three of the trailing four quarters.
NTDOY has gained more than 125% since hitting its 52-week low of $35.82 in March last year. The stock hit its 52-week high of $82.55 on December 17th, 2020.
How does NTDOY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
You cannot ask for better. It is currently ranked #1 of 15 stocks in the Entertainment – Toys & Video Games industry.
Activision Blizzard, Inc. (ATVI)
ATVI develops and distributes content and services suitable for video gaming consoles, personal computers (PC), and mobile devices internationally. Operational since 1979, ATVI’s most famous product franchises include Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch, and Candy Crush.
In December , ATVI’s World of Warcraft became the fastest selling game of all time; its latest ‘Shadowland’ version sold 3.70 million copies worldwide on the first day of launch. Just a couple of days before the announcement, ATVI’s Call of Duty franchise generated more than $3 billion through net bookings over the trailing 12 months, up 80% year-over-year. The company has sold more than200 million units of Call of Duty in the last year, reflecting a 40% improvement year-over-year.
ATVI’s net revenues have increased 52.4% year-over-year to $1.95 billion in the third quarter ended September 30, 2020. Its non-GAAP EPS has risen 131.6% from the year-ago value to $0.88, while net bookings have grown 46.3% from the same period last year to $1.77 billion.
The consensus EPS estimate of $0.63 for the ongoing quarter ending March 31, 2021 represents an 8.6% improvement year-over-year. Moreover, the company’s EPS is expected to rise at a rate of 24.4% per annum over the next five years. ATVI has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.68 billion for the fiscal first quarter ending March 31, 2021 indicates a 10.6% rise from the same period last year.
ATVI has gained more than 75% since hitting its 52-week low of $50.51 in March. The stock hit its 52-week high of $92.99 on December 31.
It is no surprise that ATVI is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #2 in the same industry.
Electronic Arts Inc. (EA)
EA is a major video game developer and distributor, publishing games in various genres. Its most popular gaming franchises are FIFA, Need for Speed, Madden NFL, and Star Wars Jedi. It also provides advertising and licensing services and has a well-established digital distribution channel comprising third-party mass market retailers and specialty stores. It has an Institutional Shareholder Services (ISS) Governance QualityScore of 1, indicating relatively low governance risk.
EA is currently acquiring U.K.-based game developer Codemasters for approximately $1.20 billion. With Codemasters’ creative knowledge in the gaming industry, EA is well positioned to solidify its foothold in the video gaming industry in the U.K. and worldwide.
The company debuted the adventure game ‘It Takes Two’ on December 10, in collaboration with Hazelight Studios, which is scheduled to be launched commercially on March 26. The company also launched the next generation of NFL and FIFA in December and has been actively diversifying its gaming pipeline to appeal to a larger customer base.
EA’s net bookings for trailing 12-months increased 8% year-over-year to $5.77 billion as of September 30, 2020. This can be attributed to a rise in subscribers because Madden NFL 21’s total number of players have increased 30% year-over-year in the fiscal second quarter ended September 30, 2020. EA’s revenue from the live services and other segments has risen 13.2% year-over-year to $869 million over this period. Operating cash flow has increased 64.9% from the year-ago value to $61 million.
Analysts expect EA’s EPS to rise 13.1% in fiscal 2021, and at a rate of 13.8% per annum over the next five years. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.32 billion for the ongoing quarter ending March 31, 2021 indicates a 9% improvement year-over-year.
EA has gained more than 70% to hit its 52-week high of $147.36 in August since hitting its 52-week low of $85.69 in March. The stock has gained 44.2% over the past year.
EA’s POWR Ratings reflect this promising outlook. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade and Industry Rank, and a “B” for Peer Grade. Of 15 stocks in the same industry, EA is currently ranked #3.
Take-Two Interactive Software, Inc. (TTWO)
TTWO develops and markets interactive gaming and entertainment solutions under Rockstar Games, 2K labels, private division, and social point labels. TTWO’s games are designed for console gaming systems as well as computers and smartphones.
Over the past couple of months, TWO has rolled out multiple upgrades of its most famous gaming series, Grand Theft Auto, through its subsidiary Rockstar Games. The company has also launched new versions of its NBA series and “Everything is game” franchise over the past two months.
TTWO’s digitally derived net revenue has increased 16% year-over-year to $711.30 million in the third quarter ended September 30, 2020. Recurrent consumer spending, which indicates long-term consumer engagement with TTWO’s products, has increased 56% from the prior-year quarter. And its net income has risen 38% from the year-ago value to $99.30 million, while EPS rose 36.5% from the same period last year to $0.86.
The consensus EPS estimate of $5.60 for fiscal 2021 represents a 5.3% rise year-over-year. Moreover, TTWO’s EPS is expected to rise at a rate of 15.3% per annum over the next five years. It has an impressive earnings surprise history as well; it beat the Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $3.28 billion for the current year indicates a 9.6% rise from the same period last year.
TTWO has approximately doubled since hitting its 52-week low of $100 in March. The stock hit its 52-week high of $209.26 on December 30.
TTWO is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #4 in Entertainment – Toys & Video Games industry.
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NTDOY shares were trading at $78.68 per share on Wednesday afternoon, down $2.20 (-2.72%). Year-to-date, NTDOY has declined -2.29%, versus a 0.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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