Video game companies had a tough start to the year, but with stay-at-home orders sending them soaring recently, should game stocks be in your portfolio?
The video game industry has bounced back from the COVID-19 downturn, with some companies hitting new highs as they take full advantage of people being stuck inside for long periods.
What are some leading video game companies?
1. Electronic Arts (EA)
Electronic Arts (NASDAQ: EA) is one of the most recognizable video game publishers out there. Some people will point to the company losing its 15-year exclusivity partnership with the NFL and the continuing success of Take-Two Interactive’s (NASDAQ: TTWO) ‘NBA 2K’ franchise as being a sign of a dimming light in EA. However, the company has beaten all of its Q4 estimates, with an increase in earnings of almost 37%.
Three of the last quarters have seen the company continue to defy expectations. It has over 300 million registered players on board, with massively popular franchises such as ‘FIFA’, ‘Battlefield’ and ‘Apex Legends’, and the pandemic will only bolster EA’s performance further. Some of its franchise games are also set to become part of Alphabet’s (NASDAQ: GOOGL) Google Stadia cloud gaming offering.
2. Take-Two Interactive
Take-Two Interactive (NASDAQ: TTWO) is the leading light in the video games industry. This is the publisher that brought us the likes of ‘Grand Theft Auto’, ‘Borderlands’, ‘Red Dead Redemption’ and ‘NBA 2K’. Its portfolio covers most major gaming segments and is more often than not the leading games in these categories. Therefore, Take-Two is ideally positioned to take advantage of continuing growth in video game participation.
One of its strengths is its online services that generate consistent revenue rather than just one-off hardware sales, as upgrade packages and microtransactions continue to generate recurring income. ‘Grand Theft Auto 6’ is rumored to be in the works, which will look to bypass the more than 110 million copies sold by its predecessor.
In terms of esports, the ‘NBA 2K’ franchise is Take-Two’s flagship product. Some of the league’s biggest players took part in the hugely successful ‘NBA 2K’ Players Tournament showcased on ESPN. The company’s share price has risen by more than 85% over the past three years. While it is near all-time highs, there is still plenty of potential for growth into the future. Its latest quarterly earnings were released on May 20, showcasing a 16% increase in net revenue, with recurrent consumer spending rising by 29% (accounting for 44% of net revenue).
A lot of people classify Nvidia (NASDAQ: NVDA) as being more of a virtual reality or AI stock, but its beginnings came in the gaming chips space. Of its $10.9 billion revenue in 2020, $5.5 billion of it came from gaming.
While it is not a creator of video games, its gaming chips have been the powerhouses for gaming rigs. It is always innovating to remain at the top of the sector, releasing a cloud gaming service called GeForce NOW in 2019. The company also recently purchased a data center company in Israel called Mellanox in a deal worth $6.9 billion. This deal will massively improve the efficiencies of the company, making it an ideal strategic asset going forward.
Nvidia has recovered strongly since its March drop, posting all-time highs. It has cash reserves of over $4.2 billion, meaning that it should weather any potential storm that hits the sector. The share price is now at an all-time high, so caution may be needed. However, it looks like there is still room for growth as it cashes in on the current pandemic.
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