Following solid growth during the pandemic, thanks to the lockdown restrictions, the gaming industry suffered last year due to the headwinds of high inflation and supply chain challenges, leading to a slowdown of demand.
However, the gaming industry is expected to grow significantly with rapid technological advancements and the increasing number of gamers. Amid this backdrop, fundamentally strong gaming stocks Activision Blizzard, Inc. (ATVI), Avid Technology, Inc. (AVID), and SciPlay Corporation (SCPL) are well-positioned to capitalize on the gaming industry’s solid growth prospects.
The popularity of e-sports tournaments and the growing number of professional gamers are contributing to the boom in the gaming market. Also, the expansion of gaming platforms beyond traditional consoles and personal computers to mobile devices, cloud gaming, and virtual reality is contributing to the industry’s rapid growth.
The gaming industry is witnessing a strong inflow of investments from big corporations and venture capitalists. This provides more capital to game development studios for developing innovative games. According to Statista, revenue in the games market is expected to reach a market volume of $533 billion by 2027 growing at a CAGR of 7.7%.
Given these factors, it could be wise to buy fundamentally strong stocks ATVI, AVID, and SCPL.
Activision Blizzard, Inc. (ATVI)
ATVI develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King.
In terms of the trailing-12-month EBIT margin, ATVI’s 24.28% is 206.5% higher than the 7.92% industry average. Its 22.82% trailing-12-month net income margin is 583.5% higher than the 3.34% industry average. Likewise, its 9.79% trailing-12-month Return on Common Equity is 234.1% higher than the industry average of 2.93%.
ATVI’s non-GAAP net revenues increased 34.8% year-over-year to $2.38 billion for the first quarter that ended March 31, 2023. The company’s non-GAAP operating income increased 56.5% from the prior-year period to $953 million.
Its non-GAAP net income increased 72.9% year-over-year to $866 million. In addition, its non-GAAP EPS came in at $1.09, representing a 70.3% increase from the prior-year quarter.
ATVI's EPS and revenue for the quarter ending June 30, 2023, are expected to increase 83.6% and 36.5% year-over-year to $0.86 and $2.23 billion, respectively. Over the past six months, the stock has gained 5.6% to close the last trading session at $77.43.
ATVI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Entertainment - Toys & Video Games industry, it is ranked #7 of 21 stocks. In addition, it has a B grade for Growth, Sentiment, and Quality. We have also given ATVI grades for Value, Momentum, and Stability. Get all ATVI ratings here.
Avid Technology, Inc. (AVID)
AVID develops, markets, sells, and supports software and integrated solutions for video and audio content creation, management, and distribution worldwide. The company's video products and solutions include the Media Composer, Avid NEXIS shared storage systems, Maestro solutions, AirSpeed 5000 and AirSpeed 5500 on-air server solutions, and MediaCentral.
In terms of the trailing-12-month EBIT margin, AVID’s 13.02% is 185.3% higher than the 4.57% industry average. Its 13.23% trailing-12-month net income margin is 407.5% higher than the 2.61% industry average. Likewise, its 1.49x trailing-12-month asset turnover ratio is 141.1% higher than the 0.62x industry average.
For the fiscal fourth quarter that ended December 31, 2022, AVID’s subscriptions revenue increased 24.6% year-over-year to $42.45 million. Its net income increased 66% year-over-year to $25.26 million. The company’s net EPS came in at $0.57, representing a 72.7% increase from the prior-year quarter.
AVID’s EPS for the quarter ending Jun 30, 2023, is expected to increase 21.3% year-over-year to $0.32. Its revenue for the quarter ended March 31, 2023, is expected to increase marginally year-over-year to $101 million. The stock has gained 7.6% year-to-date to close the last trading session at $28.60.
AVID’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #17 out of 79 stocks in the Technology - Services industry. The stock has an A grade for Quality. Click here to access the POWR Ratings of AVID for Growth, Value, Momentum, Stability, and Sentiment.
SciPlay Corporation (SCPL)
SCPL develops, markets, and operates a portfolio of social games for mobile and web platforms in North America and internationally. It offers social casino games as well as casual games.
In terms of the trailing-12-month EBIT margin, SCPL’s 22.89% is 189% higher than the 7.92% industry average. Its 21.56% trailing-12-month Return on Common Equity is 635.5% higher than the 2.93% industry average. Likewise, its 16.64% trailing-12-month Return on Total Capital is 370.1% higher than the industry average of 3.54%.
SCPL’s revenue increased 17.9% year-over-year to $182.10 million for the fourth quarter that ended December 31, 2022. Its net income attributable to SCPL increased 240.9% year-over-year to $7.50 million. Additionally, its EPS came in at $0.32, representing a 71.9% increase from the prior-year quarter.
SCPL’s EPS and revenue for the quarter ended March 31, 2023, are expected to increase 36% and 13.3% year-over-year to $0.24 and $178.96 million, respectively. Over the past nine months, the stock has gained 32.1% to close the last trading session at $17.19.
It is no surprise that SCPL has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
In addition, it has an A grade for Value and a B for Growth and Quality. It is ranked #4 in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings of SCPL for Momentum, Stability, and Sentiment.
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ATVI shares were trading at $77.02 per share on Tuesday morning, down $0.41 (-0.53%). Year-to-date, ATVI has gained 0.61%, versus a 8.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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