Should We Invest In Video Game Stocks This Month?
Amid the coronavirus pandemic, one group of stocks that outperformed the market are video game stocks. Video game stocks, particularly games with eSports are drawing huge interests from gamers and investors alike. With millions of people unable to leave their homes, video games have become a conveniently accessible distraction. According to Verizon CEO Hans Vestberg, video gaming on Verizon’s mobile network increased 75% week-over-week in mid-March. While this is likely a temporary surge, it underscores how important games have become, especially to younger and tech savvier generations.
The huge uptick in mobile game downloads could significantly boost video gaming stocks to a higher valuation. Let’s take a look at a gaming ETF. Video game stocks, as represented by VanEck Vectors Video Gaming and eSports ETF (ESPO Stock Report) have outperformed the broader market, providing investors with a total return of 21.92% compared to the S&P 500’s total return of -6.55 % year to date. Is this the ‘new normal’ economy going to further boost the game industry? Possibly.
The interest in gaming stocks could even last until after the Covid-19 situation improves. Why do I say that? To me, the growing number of participants in the gaming industry, particularly eSports, is worth the attention. What this pandemic brought about is another chance for investors to realize the viability of the gaming industry, and the potential it has. Let’s take a closer look at the following game stocks and see if they might be worth investing in.
Best Game Stocks To Watch In 2020: Activision Blizzard
Activision Blizzard (ATVI Stock Report) needs no introduction among gamers. The company has more than 400 million monthly active users across its top gaming franchises. These include Call of Duty, World of Warcraft, Overwatch, and Candy Crush.
ATVI Stock To Benefit From The Recent Call Of Duty Warzone Launch?
Even though anyone can play COD Warzone for free, the company can monetize the game via in-game purchases such as player outfits and weapons. While it is too early to say if the game could greatly reward Activision in terms of revenue, the game logged over 50 million players within a month. Making it one of the fastest growing free-to-play games in history.
The company reported non-GAAP earnings per share of $0.66 on revenues of $1.79 billion for the first quarter ended March 31. Net bookings were also up compared to the same quarter last year, coming in at $1.52 billion compared to $1.26 billion last year. As a result, ATVI stock has been riding along with other gaming companies.
The mobile gaming segment is the largest segment of the market measured by both the number of players and total revenue. In 2018, mobile gaming produced $63 billion in sales, accounting for 46% of total video games sales that year. Separately, Activision appointed veteran Google executive Daniel Alegre to the roles of President and Chief Operating Officer (COO) in April. With that in mind, would the launch of new games and the new appointment bring the company to greater heights? You be the judge.
Best Game Stocks To Watch In 2020: Zynga
With the widespread use of smartphones, video games have become far more mainstream and accessible to a broader audience. Zynga (ZNGA Stock Report) is one of the top game developers in the smartphone market. The company is well known for game titles like Words with Friends, Zynga Poker, FarmVille, and CSR Racing.
From the latest quarterly report, the company reported $0.08 earnings per share, beating analysts estimates of $0.06 per share. Revenue was $404 million in the first quarter, up 52% from a year ago. However, payouts in relation to acquired companies that are producing these hit games have led to a larger than expected loss. Due to accounting rules, Zynga can’t recognise the revenues from the acquired companies as quickly as it can recognize the expenses.
As a result, CEO Frank Gibeau said that the company has to defer a considerable amount of the revenue to future quarters, based on accounting rules for deferred revenue. The company also has a healthy debt level of about $576 million. The company is worth $1.86 billion after subtracting liabilities from assets. The considerable buffer of assets makes them a sustainable investment. Moreover, with the expected introduction of the 5G network connectivity in a number of countries, we could see more interest in mobile games. Zynga can leverage the faster 5G connection to upgrade its offerings and introduce higher performance games. With that in mind, could ZNGA stock benefit as both its games and financials improve over time?