Roblox (NASDAQ: RBLX) and Take-Two Interactive (NASDAQ: TTWO) produced solid Q3 reports, which is really no surprise. The gaming industry has a loyal following with the release of new titles and deepening penetration of markets to drive business. Also, it is unsurprising that gaming stocks have high institutional interest and are widely held by funds and money managers. Their activity put a bottom in the market over the past few quarters and set it up to move higher.
Take-Two Interactive leads the pair and is up about 45% YTD, but both are technically well-positioned for gains. Take-Two is on the brink of a complete reversal with strong technical signals to drive it higher. Roblox, on the other hand, is moving up from a solid base of support, and the market is melting up.
The post-release action caused a significant price gap, closing the gap formed earlier this year and showing new support at the upper boundary. Because a significant increase in volume supports both moves, the odds are high that the market will follow through and take the price action up to new highs.
Institutions, funds, and analysts own gaming stocks
The institutional activity in these gaming stocks has been mixed this year, with some net-selling quarterly earlier in the year, but it is bullish on balance. Activity in Q3 and Q4 is bullish on balance, including buys from a broad spectrum of investment groups.
The stocks are widely held by funds, including Vanguard Group and BlackRock, but also by state and local governments, retirement funds, and money managers. Collectively, they own about 90% of TTWO and 70% of RBLX stock, and their holdings are growing. The takeaway is that activity coincides with the bottoming in price action and may ramp up now that the Q3 results and guidance have been reported.
The Q3 reports had top and bottom line strength and positive free cash flow. Roblox led with a 20% increase in net bookings compared to a -4% decline for TTWO but performed well for the period.
The difference is that Roblox is gaining new customers and growing its revenue per user while Take-Two continues to struggle. Roblox grew daily active users by 20% and compounded the growth with a 5% increase in revenue per monthly active user. However, Take-Two provided positive guidance, suggesting its rebound only begins with the holiday quarter ahead. Roblox didn’t give guidance but says it will start doing so in Q1 2024.
Analysts favor the stocks, but the trends favor Roblox price action over Take-Two. Both stocks are rated a Moderate Buy with a price target moving up from a bottom, but only Roblox sentiment is trending higher. Roblox sentiment is up to Moderate Buy from Hold with a target that assumes fair value near $39. The 2 revisions tracked by Insidertrades.com since the report was released include 2 boosted price targets with a consensus of $49, about 25% of upside from current price action.
The technical outlook: higher share prices ahead
Shares of TTWO gained 7% for the week to create a solid green candle, confirming support at the $135 level. This level coincides with a critical moving average crossover compounded by the MACD and stochastic setup. Those indicators are ready to confirm a bullish trend-following signal aligning with a larger head & shoulders reversal. In this scenario, the stock could move above $155 soon and trend higher into next year.
Shares of Roblox are up nearly 10% for the week but showing signs of resistance on the weekly chart. There is a risk that the market could pull back from here, but support on the daily chart is evident. If the market sustains support above $37, it should enter consolidation with a chance of rallying later this year. In this scenario, RBLX could move to the upper end of its 2-year trading range by the end of the year.
