Electronic Arts (EA) and 2 More Entertainment Stocks – Buy or Sell?

The gaming industry is well-positioned for growth as online gaming, offering pleasure, entertainment, and social opportunities, has thrived despite recent economic challenges.

To that end, it could be wise to buy fundamentally strong entertainment stocks: Nintendo Co., Ltd. (NTDOY), Activision Blizzard, Inc. (ATVI), and Electronic Arts Inc. (EA).

Before diving deeper into the fundamentals of these stocks, let’s discuss why the entertainment industry is well-positioned for growth.

The gaming industry did well during the pandemic as people were stuck indoors, and the number of first-time gamers spiked. This had a positive impact on console and video game purchases. From a casual, sporadic hobby, gaming has become a more serious, ongoing interest.

The popularity of eSports, mobile gaming, and online gaming, along with factors like rising internet penetration, faster connectivity thanks to 5G, and the emergence of cutting-edge technologies like artificial intelligence (AI), augmented reality (AR), and virtual reality (VR), are all helping to fuel the growth of the gaming industry.

The mobile gaming market is expected to grow from $141.71 billion in 2023 to $300.47 billion by 2028, growing at a CAGR of 16.2%. Furthermore, the global gaming market is anticipated to reach $665.77 billion in 2030, growing at a CAGR of 13.1%. Investor interest in gaming stocks is evident from the VanEck Vectors Gaming ETF’s (BJK)  18.2% returns over the past year.

Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Entertainment – Toys & Video Games stocks, beginning with the third choice.

Stock #3: Nintendo Co., Ltd. (NTDOY)

Headquartered in Kyoto, Japan, NTDOY develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It also offers video game platforms, playing cards, Karuta, other products, handheld and home console hardware systems, and related software.

In terms of the trailing-12-month EBIT margin, NTDOY’s 33.50% is 294% higher than the 8.50% industry average. Likewise, its 17.29% trailing-12-month levered FCF margin is 103.4% higher than the 8.50% industry average. Furthermore, the stock’s 28.18% trailing-12-month net income margin is 582.7% higher than the 4.13% industry average.

NTDOY’s net sales for the first quarter ended June 30, 2023, increased 50% year-over-year to ¥461.34 billion ($3.12 billion). Its operating profit increased 82.4% over the prior-year quarter to ¥185.44 billion ($1.25 billion).

The company’s profit attributable to owners of parent rose 52.1% year-over-year to ¥181.02 billion ($1.23 billion). In addition, its profit per share came in at ¥155.48, representing an increase of 52.7% year-over-year.

For fiscal 2024, NTDOY’s revenue is expected to increase 4% year-over-year to $10.84 billion. Over the past six months, the stock has gained 12.9% to close the last trading session at $10.84.

NTDOY’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.

It has an A grade for Quality and a B for Growth. Within the Entertainment – Toys & Video Games industry, it is ranked #7 out of 19 stocks. To see NTDOY’s Value, Momentum, Stability, and Sentiment ratings, click here.

Stock #2: 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.

On August 1, 2023, ATVI announced the launch of the TITANS expansion for Hearthstone, featuring 145 new cards, 11 Legendary Titan minions, the Forge keyword, and the return of the Magnetic keyword. The expansion brings arcane magic and ancient technologies from the TITANS to the game.

A new creative mode called Twist was introduced on September 1, offering unique gameplay variants.

In terms of the trailing-12-month EBITDA margin, ATVI’s 26.67% is 44.2% higher than the 18.49% industry average. Likewise, its 24.88% trailing-12-month net income margin is 502.6% higher than the 4.13% industry average. Furthermore, its 25.58% trailing-12-month EBIT margin is 200.8% higher than the 8.50% industry average.

For the second quarter ended June 30, 2023, ATVI’s net revenues increased 34.2% year-over-year to $2.21 billion. The company’s operating income rose 72.5% year-over-year to $583 million. Its non-GAAP net income increased 90.5% year-over-year to $724 million. Its non-GAAP EPS came in at $0.91, representing an increase of 89.6% year-over-year.

Street expects ATVI’s EPS and revenues for the quarter ending September 30, 2023, to increase 27.8% and 14.5% year-over-year to $0.87 and $2.09 billion, respectively. ATVI surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 21.2% to close the last trading session at $92.07.

ATVI’s POWR Ratings reflect strong prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Quality. Within the same industry, it is ranked #6. Click here to see ATVI’s Growth, Value, Momentum, Stability, and Sentiment ratings.

Stock #1: Electronic Arts Inc. (EA)

EA develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It develops and publishes games and services across various genres, such as sports, racing, first-person shooter, action, role-playing, and simulation, and licenses games from others.

On September 7, 2023, EA and UFC announced the launch of EA SPORTS UFC 5 on October 27, 2023, for PlayStation 5 and Xbox Series X|S. Developed on the Frostbite Engine for the first time, UFC 5 features the all-new Real Impact System and delivers an authentic MMA experience with enhanced graphics and gameplay. The enhanced physics and animations create a lifelike Octagon experience.

On August 22, 2023, EA and Ascendant Studios launched Immortals of Aveum, a single-player, first-person magic shooter powered by Unreal Engine 5.1, set in an original fantasy universe. It's available on PlayStation 5, Xbox Series X|S, and PC via the EA app, Steam, and Epic Games Store worldwide.

In terms of the trailing-12-month levered EBIT margin, EA’s 20.90% is 145.8% higher than the 8.50% industry average. Likewise, its 75.81% trailing-12-month gross profit margin is 53.6% higher than the 49.37% industry average. Furthermore, the stock’s 11.78% trailing-12-month net income margin is 185.2% higher than the 4.13% industry average.

EA’s total net revenues for the fiscal first quarter ended June 30, 2023, rose 8.9% year-over-year to $1.92 billion. Its gross profit rose 7.1% year-over-year to $1.56 billion. The company’s operating income increased 22.9% over the prior-year quarter to $542 million.

Its net income increased 29.3% year-over-year to $402 million. Also, its EPS came in at $1.47, representing an increase of 32.4% year-over-year.

Analysts expect EA’s EPS for the September 30, 2023 quarter to increase 0.4% year-over-year to $1.26. Likewise, its revenue for the same quarter is expected to increase 1% year-over-year to $1.77 billion. Over the past six months, the stock has gained 6.8% to close the last trading session at $121.

It’s no surprise that EA has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.

It has an A grade for Quality and a B for Value. It is ranked #3 in the Entertainment – Toys & Video Games industry. In total, we rate EA on eight different levels. Beyond what we stated above, we also have given EA grades for Growth, Momentum, Stability, and Sentiment. Get all the EA’s ratings here.

What To Do Next?

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ATVI shares were trading at $92.47 per share on Wednesday afternoon, up $0.40 (+0.43%). Year-to-date, ATVI has gained 22.10%, versus a 17.30% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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