The gaming industry experienced a windfall during the COVID-19 pandemic. It provided many people with means to stay entertained and active from the confines of their homes. Despite the normalization of the health crisis, interactive entertainment seems to have become an irreversible and growing trend due to enhanced offerings fueled by the integration of advanced technologies such as 5G, AR, and VR.

Despite a post-pandemic reversal to a more hybrid lifestyle, the gaming industry is expected to reach a revenue of $365.60 billion globally in 2023 and grow at a 7.2% CAGR to $482.30 billion by 2027. Mobile gaming is expected to contribute to much of this growth.

However, investors should be careful to bank on fundamentally strong and growing companies in this space while chaffing out the ones with a bleak outlook. Hence, we think it would be wise to buy Playtika Holding Corp. (PLTK) and SciPlay Corporation (SCPL) to make the most of the industry tailwinds and avoid Roblox Corporation (RBLX), given its weak fundamentals and decelerating growth.

Stocks to Buy:

Playtika Holding Corp. (PLTK)

PLTK is a mobile game developer based in Herzliya, Israel. The company distributes its portfolio of casual and casino-themed games to the end customer through various web and mobile platforms.

On January 19, PLTK announced that it had submitted a revised proposal to acquire Rovio Entertainment Corporation for €9.05 per share in cash. The non-binding proposal represented an improvement over an initial €8.50 per share proposal submitted on November 16, 2022.

PLTK believes that Rovio’s renowned IP and the scale of its user base would synergize with its own best-in-class monetization and game operations capabilities to create tremendous value for its shareholders.

On November 21, 2022, PLTK announced the execution of an agreement for a $25 million minority investment in Turkish mobile gaming company Ace Games (“Ace”). The company believes this to be an important milestone in the execution of its new game’s investment strategy.

For the third quarter that ended September 30, 2022, PLTK’s revenue increased 1.9% year-over-year to $647.8 million. During the same period, casual games, representing 54.9% of overall revenues, grew 14.4% year-over-year, while the company’s Average Daily Paying Users (DPUs) increased 5.8% year-over-year to 3,10,000 users.

PLTK’s adjusted EBITDA for the quarter stood at $230.7 million, while its net income came in at $68.2 million or $0.17 per share. The company’s total assets stood at $2.99 billion as of September 30, 2022, compared to $2.8 billion as of December 31, 2021.

Analysts expect PLTK’s revenue and EPS for fiscal 2023 to increase 0.91% and 31.9% year-over-year to $2.64 billion and $0.82, respectively.

The stock has gained 4.2% over the past month to close the last trading session at $9.92.

PLTK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

PLTK has an A grade for Value and a B for Quality. It is ranked #7 of 21 stocks in the Entertainment – Toys & Video Games industry.

Click here for additional POWR ratings for Sentiment, Momentum, Growth, and Stability for PLTK.

SciPlay Corporation (SCPL)

SCPL operates in the social gaming market as a developer and publisher of digital games on mobile and Web platforms. It offers a variety of social casino games and casual games, which can be played online, on mobile phones or tablets across multiple platforms.

According to Josh Wilson, Chief Executive Officer of SCPL, the company’s strategic investments, including in the SciPlay Engine and its upcoming direct-to-consumer platform, would enhance its ability to drive growth and long-term margin expansion.

Till November 9, 2022, SCPL had repurchased its shares worth approximately $28 million, which translates to nearly half of the total program authorization. Given its strong balance sheet, ample liquidity, and compelling value, the company expects to keep repurchasing its shares.

During the fiscal third quarter, which ended September 30, 2022, SCPL’s revenue increased 16.5% year-over-year to $170.8 million. During the same period, the company’s average Monthly Paying Users (AMPU) increased to a record 0.6 million, compared to 0.5 million in the prior-year period.

As a result, Average Monthly Revenue Per Paying User (AMRPPU) increased 1.9% year-over-year to $95.45, while the Average Revenue Per Daily Active User (ARPDAU) increased 15.9% year-over-year to a record $0.80. The company’s adjusted EBITDA for the quarter came in at $42.8 million, while its net income came in at $33.7 million.

SCPL’s revenue and EPS for the fiscal year, which ended December 31, 2022, are expected to increase 10% and 25% year-over-year to $666.97 million and $0.96, respectively. Analysts expect both metrics to improve by a further 5.9% and 19% during the current fiscal to $705.99 million and $1.14, respectively.

SCPL’s stock has gained 1.2% over the past month and 19.6% over the past year to close the last trading session at $16.19.

SCPL’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 also has an A grade for Value and a B for Growth and Quality.

Hence, it deservedly tops the list of 21 stocks in the Entertainment – Toys & Video Games industry. 

Click here for additional ratings for Momentum, Stability, and Sentiment of SCPL.

Stock to Avoid:

Roblox Corporation (RBLX)

RBLX operates an online entertainment platform where users interact with each other to explore and develop user-generated and 3D experiences. The company’s offerings include Roblox Studio, Client, Education, and Cloud.

On September 9, 2022, it was reported that RBLX would introduce online advertising to diversify its income stream amid its ongoing battle against a slowdown in revenue growth and its quest for profitability.

For the fiscal year 2022, which ended December 31, 2022, although RBLX’s revenue increased 15.9% year-over-year to $2.23 billion, its loss from operations widened 86.6% year-over-year to $923.78 million.

As a result, the company’s adjusted EBITDA during the fiscal decreased by 47.1% year-over-year to $356.46 million, while the net loss attributable to common stockholders worsened by 88% and 59.8% year-over-year to $924.37 million and $1.55 per share, respectively.

Analysts expect RBLX’s loss per share for the fiscal year 2023 to widen 23.9% year-over-year to $1.92. Losses are expected to mount by a further 6.8% year-over-year during the next fiscal to come in at $2.05 per share.

The stock has declined 4.5% over the past month and 27.1% over the past six months to close the last trading session at $35.67.

In concurrence with this bleak outlook, RBLX has an overall POWR Rating of F, which translates to a Strong Sell in our proprietary rating system. The stock also has an F grade for Stability and Sentiment and a D for Growth, Value, Quality, and Momentum.

Unsurprisingly, it is ranked last in the same industry. To see all POWR Ratings for RBLX, click here.

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RBLX shares were trading at $44.50 per share on Wednesday afternoon, up $8.83 (+24.75%). Year-to-date, RBLX has gained 56.36%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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