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3 Gaming Stocks in Focus as the Holiday Season Approaches

Zacks Equity Research
Updated

The holiday season is the most important time of the year for video game developers and distributors. The majority of the companies tend to release their most important titles couple of months ahead, particularly from September, to attract the maximum number of players.

Hence, a strong and innovative game pipeline is of utmost importance for the companies as well as investors.

Moreover, availability on the latest consoles decides the games growth trajectory during the holiday season. Notable manufacturers like Microsoft Corporation MSFT, Sony Corporation SNE and Nintendo Co. Ltd NTDOY also launch their flagship devices prior to the holiday season.

Market research firm, Newzoo expects consoles to be the second largest revenue generator after mobile gaming with $33.5 billion in 2017.

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Microsoft Banks on Xbox One

Microsoft’s much-awaited Xbox One X is set to release on Nov 7. Preorder volumes have already surpassed all previous records. Per media reports, preorder of the device is expected to go live again on Sep 21.

Microsoft expects the new console to help in bridging the gap with Sony’s PS4. Per Venturebeat, Sony’s market share in the console hardware market was almost double that of Microsoft’s 26% at the end of 2016.

However, lesser number of exclusive games can be a headwind for Microsoft. Sony has a much enriched line-up of exclusive titles for PS4 Pro, namely Gravity Rush 2, Tales Of Berseria, Yakuza 0, Nioh, Horizon Zero Dawn and Persona 5 among many others.

Moreover, Microsoft will face competition from Nintendo. The Japan-based video game giant is set to launch Super Nintendo Entertainment System (SNES) Classic Edition across the United States on Sep 29. The company is well poised on strong sales of its Switch console. Per Nintendo, as of Jun 30, 4.7 million units of Nintendo Switch (launched in March) have been sold globally.

Mobile Games: The Cash Cows

Despite strong anticipated demand for consoles like Xbox One, we believe that mobile games are the cash cows for gaming companies. Newzoo projects mobile game revenues to grow in the range of 32% - 40% over 2017-2020 time frame.

The strong growth can be attributed to growing adoption of high-end smartphones and tablets.  Consumers are increasingly spending more on buying in-game items that are driving up the top line of companies. Per Newzoo, mobile gaming will be extremely lucrative and account for 42% of the total gaming market in 2017.

E-Sports -  The Game Changer

E-sports are fast emerging as a lucrative business opportunity. Like traditional sports, even these are held at stadiums and televised or broadcast online. Importantly, these tournaments have alluring prize money.

With continued increases in viewership, corporate sponsorships and growing media coverage, e-sports is here to stay. Per the latest report from Newzoo, in 2017, revenues from e-sports are expected to be up 41.3% to $696 million.

3 Gaming Stocks in Focus

Let’s focus on three stocks that have the most attractive game pipeline for the upcoming holiday season.

Activision Blizzard Inc. ATVI

The company recently released its much awaited online multiplayer game Destiny 2 on PS4 and Xbox One console. Activision is set to release the Call of Duty: WWII on Nov 3.

Call of Duty has been the most important revenue generating franchise for Activision over the years. The company should keep its fingers crossed with the new installment, as the last one – Call of Duty: Infinite Warfare – was a dampener.

Activision is also strengthening presence in the e-sports market. The company recently set up Blizzard Arena Los Angeles, a state-of-the-art facility for e-sports events at Burbank Studios. With Overwatch recording stupendous success with 30 million players and counting, Activision has announced a league for this franchise as well.

Activision sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares have gained 78.1% year to date, significantly outperforming the industry’s 49.2% rally.

Electronic Arts Inc. EA

The company’s digital business continues to gain traction. After the success of Star Wars: Galaxy of Heroes and Madden NFL Mobile, EA is gearing up to release a few more mobile games in the coming months.

EA has a strong pipeline of new launches, which includes FIFA 18, Star Wars Battlefront sequel (Nov 17), and  Need for Speed Payback that features BMW Group’s all-new M5 model. Moreover, the company and Maxis announced Nov 10 as the release date for The Sims 4 Cats & Dogs Expansion Pack on PC and Apple AAPL Mac.

Additionally, the company’s increasing focus on the lucrative e-sports market is likely to fuel growth. EA and the National Football League (NFL) recently announced a partnership to organize the Madden NFL Club Championship that will involve 32 NFL clubs.

EA carries a Zacks Rank #3 (Hold). Shares have gained 52.6% year to date outperforming the industry’s 49.2% rally.

Take-Two Interactive Software Inc. TTWO

The company is well-known for franchises like GTA and NBA2K. Reportedly, it is launching the new NBA 2K18 in Sep 2017 and WWE 2K18 on Oct 17.

Take-Two is also aggressively pushing into the e-sports market. In February this year, the company inked a deal with NBA to launch NBA 2K eLeague. This made NBA the only professional sports league to have its own e-sports league. The league will be functional in 2018.

Earlier this year, Take Two acquired the popular simulation game, Kerbal Space Program. A new Kerbal game – Kerbal Space Program: Making History Expansion – is also slated for launch this year.

Take-Two also has a Zacks Rank #3. Shares have gained 107.7% year to date, substantially outperforming the industry’s 49.2% rally.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

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Sony Corp Ord (SNE) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
 
Take-Two Interactive Software, Inc. (TTWO) : Free Stock Analysis Report
 
Electronic Arts Inc. (EA) : Free Stock Analysis Report
 
Nintendo Co. (NTDOY) : Free Stock Analysis Report
 
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