The video-gaming industry has seen a surge in demand over the past year, thanks to the pandemic-driven remote lifestyle. The improvement in internet services, easy access to online gaming, and rising disposable income are projected to keep the industry’s growth prospects upbeat in the coming years. Indeed, the global gaming market is expected to reach $287.1 billion by 2026, registering a 9.24% CAGR.
However, gaming services provider Zynga Inc. (ZNGA) has not been able to maintain its market position of late. The company recorded a $5.5 million operating loss and a $23 million net loss in the first quarter of 2021. Over the past month, the stock’s price has declined 7.8%. In addition to that, the company’s multiple acquisitions over the past few quarters could significantly increase its expenses and drain its cash reserves.
Meanwhile, other companies in this space have been able to capitalize on the industry tailwinds by quickly adapting to changing customer preferences for video gaming. Specifically, we believe Activision Blizzard Inc. (ATVI), Take-Two Interactive Software Inc. (TTWO), and Gravity Co. (GRVY) are better bets than ZNGA, given their tremendous growth prospects and expanded capabilities.
Click here to check out our Video Game Industry Report for 2021
Activision Blizzard Inc. (ATVI)
ATVI in Santa Monica, Calif., produces and publishes interactive entertainment content and services worldwide. Activision Publishing, Inc.; Blizzard Entertainment Inc.; and King Digital Entertainment are the company's three operational segments. The company's most popular product franchises include Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch, and Candy Crush.
This month, ATVI’s Blizzard Entertainment, Inc. expanded its digital card game by adding the Alliance in United in Stormwind for Hearthstone players. The new features in the 135 all-new cards should enable the company to grow its fan base significantly worldwide.
During the second quarter, ended June 30, 2021, ATVI's revenue increased 18.8% year-over-year to $2.30 billion. Its operating income rose 28% from its year-ago value to $959 million. Its net income increased 51% year-over-year to $876 million, while its EPS grew 49.3% from the prior-year quarter to $1.12.
A $3.77 consensus EPS estimate for the current year represents an 8.6% increase year-over-year. The $8.77 billion consensus revenue estimate for the current year represents a 4.2% increase from the same period last year. The stock has gained 4.7% over the past nine months.
ATVI's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ATVI is also rated B for Value, Sentiment, and Quality. Additionally, within the Entertainment - Toys and Video Games industry, it is ranked #5 of 22 stocks.
To see additional POWR Ratings for Growth, Stability, and Momentum for ATVI, click here.
Take-Two Interactive Software Inc. (TTWO)
TTWO develops, produces, and promotes global consumer interactive entertainment solutions. The company offers its products under various labels, including Rockstar Games, 2K, Private, Social Point, and Playdot. Furthermore, it publishes sports simulation titles, which include NBA 2K series, a basketball video game; the WWE 2K professional wrestling series; and PGA TOUR 2K. TTWO is based in New York City.
Last month, TTWO acquired Dynamixyz, a world-class leader in video-based facial animation services. Through this investment in the internal development structure, the company aims to drive its business growth and strengthen its position in the industry.
TTWO's gross profit increased 36.4% year-over-year to $483.63 million in the first quarter ended June 30, 2021. Its operating income surged 107.5% year-over-year to $170.47 million. The company's net income increased 72% from its year-ago value to $152.26 million over this period. TTWO’s EPS increased 68.8% year-over-year to $1.30.
The company's EPS is expected to grow 48.9% year-over-year to $7.03 next year. In addition, analysts expect TTWO's revenue to increase 19.2% from its year-ago value to $4.11 billion in its fiscal year 2023.
It is no surprise that TTWO has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Value and Growth. In the same industry, it is ranked #4 of 22 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the TTWO ratings for Sentiment, Quality, Stability, and Momentum here.
Gravity Co. (GRVY)
Headquartered in South Korea, GRVY creates, produces, and distributes online games primarily in the Philippines, South Korea, Taiwan, Thailand, and internationally. It creates mobile games, including Ragnarok Online-Uprising: Valkyrie, Valkyrie, and Ragnarok Violet online, and publishes third-party licensed mobile games. In addition, it provides third-party system development and maintenance, and system integration services.
In June, GRVY’s Ragnarok Origin, an MMORPG mobile game, was officially launched in Japan. On the first day of its release, the game was ranked as the first free download in both Apple App Store and Google Play.
In its fiscal year ending March 31, 2021, GRVY’s revenue increased 43.4% year-over-year to ₩105.06 billion ($91.21 million). Its operating income grew 169.9% year-over-year to ₩27.95 billion ($24.27 million). The company's net income increased 154.4% from its year-ago value to ₩23.57 billion ($20.46 million) over this period. Also, the stock has surged 53.4% over the past year.
GRVY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. GRVY also has an A grade for Value, and a B for Growth and Sentiment. In addition, the stock is ranked #2 of 22 stocks in the Entertainment - Toys and Video Games industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the GRVY ratings for Stability, Momentum, and Quality here.
Click here to check out our Video Game Industry Report for 2021
ATVI shares were trading at $81.48 per share on Wednesday morning, up $1.65 (+2.07%). Year-to-date, ATVI has declined -11.82%, versus a 18.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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