One thing is clear: COVID-19 was a boon for gaming stocks.
During the pandemic, consumers turned to gaming through desktop, mobile, gaming consoles and social networks for entertainment like never before. Gaming market and analytics firm Newzoo estimates that the gaming market generated revenues of $177.8 billion last year, reflecting a jump of 23.1% year-over-year.
While that's expected to pull back in 2021 (to $175.8 billion), Newzoo adds this isn't reason for concern given how 2020 was "a unique growth year." Looking ahead the next couple of years, the industry will return to growth, with 2023 revenues expected to near $205 billion.
But which video gaming names are best positioned to harness this return to growth? To answer that question, we've turned to the TipRanks stock comparison tool, which helps investors evaluate companies across a range of different parameters including dividend information, analyst ratings and other key indicators.
Here, we'll look at four popular gaming stocks and see what the pros are saying about each. And in most cases, these names are fresh off of their recent earnings reports, so we'll see what their results have to say about their general direction.
Take-Two Interactive Software
- Market value: $21.7 billion
- TipRanks consensus price target: $212.36 (13.0% upside potential)
- TipRanks consensus rating: Strong Buy
Take-Two Interactive Software (TTWO, $187.83) delivered strong results in its fiscal second quarter. While revenues were up by only 2% year-over-year to $858.2 million, it was the net bookings figure of $984.9 million that was encouraging and easily beat Street estimates of $861.3 million.
The company defines net bookings as the net amount of products and services sold digitally or through retail and includes merchandise, licensing fees and in-game advertising.
More importantly, recurrent consumer spending that is generated through in-app purchases, add-on content and in-game purchases rose 8.4% year-over-year to $563.6 million and made up nearly 66% of the company's total revenues. This indicated that users continued to be engaged by Take-Two's core franchises including Grand Theft Auto, NBA 2K and Red Dead Redemption.
However, Take-Two Interactive's website traffic data tells a different story. Looking at the TTWO website traffic for the year-to-date, total unique visitors on all devices from its family of domains are down 36.8% year-over-year to 113.1 million.
Nonetheless, Deutsche Bank analyst Benjamin Soff thinks it is "encouraging that TTWO's established titles are delivering such strong results currently" and this gives him confidence that "TTWO can successfully navigate the near-term period until its larger pipeline of content begins to contribute to a greater degree in the future."
While Take-Two's full game revenues fell 8.3% year-over-year to $294.5 million in its fiscal second quarter, Kraft remains optimistic that "full game sales should pick up into the holiday season and in the March quarter" as a result of new game launches from its core franchises.
As a result, the analyst reiterated a Buy rating and raised the price target from $218 to $225 on the gaming stock.
Other Wall Street analysts echo Soff's view. TTWO boasts a Strong Buy consensus rating, with an average price target of $212.36 on the stock. You can learn more about the analyst community's views on TTWO via TipRanks' stock forecast.
- Market value: $54.3 billion
- TipRanks consensus price target: $97.06 (39.3% upside potential)
- TipRanks consensus rating: Strong Buy
Activision Blizzard (ATVI, $69.69) has been beleaguered of late, with the video game company suffering from game delays and facing sexual harassment claims. Additionally, ATVI seems to be struggling when it comes to website data traffic. TipRanks' website traffic tool shows total unique visitors to its sites from its family of domains are down 35.1% quarter-to-date from the same period last year.
Investors' apprehension regarding ATVI is also reflected in a stock price that has dropped 8.4% in the past month even after solid third-quarter results. The company reported net bookings of $1.88 billion in Q3, up 6.2% year-over-year, while revenues were up 5.9% from the year prior to $2.07 billion.
However, in an important step toward addressing harassment claims, Bobby Kotick, the company's current CEO, outlined some steps to make ATVI a more inclusive company in a letter to employees last month. The five-step plan to increase workplace diversity and betterment of workplace conditions includes implementing a zero-tolerance harassment policy and committing to increase the percentage of women and non-binary people in Activision's workforce by 50%.
Moreover, to quantify this progress, the CEO asked the Board of Directors to reduce his overall compensation and cap his salary at $62,500 until the company has achieved its goals.
While Berenberg analyst Jamie Bass believes that "there is a long way to go for the company to regain trust among its workforce, investors and the public," he is of the opinion that "this is a material step in the right direction."
The launch of two of Activision's games – Overwatch 2 and Diablo IV – that belong to ATVI's Blizzard Entertainment segment have been delayed, due in part to management exits. Jen Oneal, co-leader of the Blizzard division, announced in early November that she was leaving the company at the end of 2021.
Nonetheless, Bass is bullish on the stock with a Buy rating, but recently lowered the price target slightly from $110 to $105 on the stock. The analyst added that "continued solid performance in the business and progress on the harassment situation should lead to a re-rating, in our view."
The rest of the Street is in line with Bass's view and the gaming stock has a Strong Buy consensus rating with an average price target of $97.50 (39.3% upside). See what other analysts are saying on TipRanks.
- Market value: $8.5 billion
- TipRanks consensus price target: $10.86 (43.7% upside potential)
- TipRanks consensus rating: Strong Buy
The stock is up 9.7% in the past five days as its standout third-quarter results showed revenues that soared 40% year-over-year to $705 million. Bookings in Q3 came in at $668 million, up 6.4% from the year prior.
More importantly, the company exceeded $500,000 in advertising revenues and bookings over the trailing 12 months, a whopping jump of 88% from the year prior.
This growth was largely driven by Rollic's hyper-casual portfolio of games. In October 2020, Zynga paid $180 million in cash to take an 80% stake in Rollic, an Istanbul-based mobile games developer and publisher.
Furthermore, the strong Q3 results gave a boost to Wedbush analyst Michael Pachter's belief about "the company's ability to build iconic 'forever' franchises, integrate highly-accretive studios and further exploit its unique ad opportunity."
The analyst reiterated his Outperform (Buy) rating following the company's third-quarter results, but lowered the price target from $15 to $12 on the stock.
Moreover, Pachter points out that if Zynga is able to offer virtual goods in a store, especially within the iOS and Android (GOOGL) ecosystems, the company's "operating profit will expand by at least 1,000 basis points (a basis point is one-one hundredth of a percentage point) over time, with a bias that the margin expansion could grow by more than 2,000 basis points."
All 11 of the analysts who have offered a rating on Zynga believe it is a Buy, with a strong upside potential over the next 12 months. You can learn more about the analyst community's views on Zynga shares via TipRanks' consensus breakdown.
Even the monthly website traffic data for Zynga seems to support the bullish outlook on the gaming stock. TipRanks' website traffic tool shows total unique visitors to the site increased 12.9% from September to October to 1.3 million.
- Market value: $62.3 billion
- TipRanks consensus price target: $96.43 (10.4% downside)
- TipRanks consensus rating: Moderate Buy
Roblox (RBLX, $107.58) is one of the top online entertainment platforms for people under the age of 18 based on average monthly visits and time spent, according to media measurement and analytics firm Comscore. The gaming stock has seen its shares jump nearly 50% in the past month, driven by better-than-expected third-quarter results, and it is now trading well above analysts' consensus price target.
Bookings increased 28% year-over-year to $637.8 million in the quarter and beat analysts' expectations of $618.8 million. Average daily active users (DAUs) arrived at 47.3 million, up 31% from the year prior.
"Growth in all of our core metrics – DAUs, hours and bookings – displayed strong year-over-year growth despite lapping COVID-impacted periods and back-to-school seasonality," said Michael Guthrie, Roblox's chief financial officer. "Based on our October results, we appear to be having a great start to the last quarter of the year."
This was corroborated by Morgan Stanley analyst Brian Nowak. "October monthly results trended significantly ahead as, excluding the impact of the Halloween weekend outage (which our numbers did not include)," he wrote in note.
The analyst added that these results are bullish for the fourth quarter and "these trends speak to RBLX's better-than-appreciated growth runway and ability to continue to grow its user base, engagement and monetization … even through reopening."
Moreover, Nowak believes that the rising user engagement is "critical to RBLX's ability to build upon some of the bull-case opportunities such as advertising, sponsorships and e-commerce."
The analyst is upbeat toward RBLX, rating the gaming stock at Buy and maintaining an $88 price target.
Among seven analysts following the stock, five rate it a Buy, one says Hold and the other deems it a Sell. To learn more about what analysts think, see Roblox's stock forecast on TipRanks.
Shrilekha Pethe has been extensively covering and writing about the U.S. financial markets since 2015. Prior to writing about the world of finance, Shrilekha worked as an equity research analyst for a bulge-bracket client in investment banking, Credit Suisse. Her sole objective is to help investors make better and informed decisions. Her core competency lies in analyzing stocks across different sectors, from technology to mining, and banking to oil and gas. She holds a postgraduate degree in finance from ICFAI Business School, Pune, and is currently on her way to becoming a Certified Financial Planner. Shrilekha has been writing for TipRanks since January 2021. You can contact Shrilekha on LinkedIn.
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