Best video game stocks to invest in

By Anna Farley

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We take a look at the gaming stocks that offer the greatest potential for punchy returns over the coming months and years…

With so many of us stuck at home during the Covid-19 pandemic, it’s no wonder the video game industry has boomed in recent times.

After all, if you can’t leave the house for real, at least you can pretend to go outside and smell the pixelated roses. Likewise, with online multiplayer games, there’s even the chance to hang out with friends in the fake outdoors.

It’s definitely more fun than yet another Zoom quiz night with the in-laws.

And so, with player engagement now at an all-time high, the value of the companies that develop and market the games they sell have also enjoyed impressive growth.

Background on the industry

In 2021, the video game market in the US alone is worth more than $65 billion.

Things have come a long way since Dr William Higinbotham designed the first ever video game back in 1958. Known as Tennis for Two, it ultimately became the model for retro arcade game Pong.

These days, we can do a lot better than two white lines on a screen.

Players can walk through the stunning scenery of Assassin’s Creed Valhalla or the hyper-real post-apocalyptic landscapes of The Last of Us Part 2.

As PCs, games consoles, and even mobile phones get more and more powerful it’s become possible to bring incredible worlds to life. That’s especially appealing when most of the real world is off limits.

So, from Activision to Zynga, here are just a few of the best performing stocks to invest in right now.

Nintendo

Nintendo (TYO: 7974) is, of course, a household name. The company is behind franchises like worldwide phenomenon Pokémon, as well as Super Mario and The Legend of Zelda.

Since the start of 2020, shares in this industry titan have climbed 27% and its ¥7.3 trillion ($66 billion) market cap can’t be argued with.

Alongside the games themselves, the company is also heavily involved in the console business. The firm created the Game Boy and all of its descendants, as well as the blockbuster Nintendo Wii console.

The latest addition to the family is the immensely popular Nintendo Switch, which transforms from a home console to a handheld device. The device retails at $299 in the US.

Since the 2017 launch, the firm has sold more than 89 million Nintendo Switch consoles – outselling Sony’s (TYO: 6758 | NYSE: SONY) Play Station 3 and Microsoft’s (NASDAQ: MSFT) Xbox 360.

In its most recent fiscal year, ended March 31, Nintendo’s net sales surged 34% to ¥1.76 trillion ($16 billion) from ¥1.31 trillion the year.

Meanwhile, operating profit of ¥640 billion ($5.8 billion) knocked out the previous record of ¥501 billion in fiscal 2019. This soundly trumped fiscal 2020’s ¥352 billion profit, too.

Given its strength and continuing popularity, this stock is certainly one to watch.

Activision Blizzard

With powerful franchises like Call of Duty and World of Warcraft, Action Blizzard (NASDAQ: ATVI) is among the biggest video game developers in the world.

The company, which has a $60.8 billion market cap, reported a 25% increase in 2020 net revenue to $8.1 billion from $6.5 billion in 2019.

The Call of Duty first-person shooter franchise had a record 2020, sustaining more than 100 million active players per month. The game, which has free-to play and premium options, saw a 40% jump in premium sales year-on-year.

Shares in the firm are up 33% since 2020 began, getting a definite boost from a boom in tech stocks during the pandemic – especially those involved in at-home entertainment like video games and video streaming.

However, Activision Blizzard’s reputation has taken a hit of late – as has its share price.

California’s department of fair employment brought a lawsuit against Activision Blizzard. This was over allegations it had violated state laws around equal pay and civil rights.

Since the suit was filed July 20, following a two-year investigation, shares have fallen 15%.

The company disputes the allegations, which include discrimination against female employees, unequal pay, and sexual harassment. It called the State’s allegations “distorted, and in many cases, false”.

While things are somewhat up in the air when it comes to the lawsuit, the accompanying share price drop might end up being an opportunity to invest at an affordable price point. Watch this space.

Electronic Arts

As the company behind the massively successful FIFA soccer-based video game franchise, there’s a lot to recommend about Electronic Arts (NASDAQ: EA).

With a market cap of $40.5 billion and shares up 33% since the start of 2020, this is a powerful company. And it has only gathered power since the pandemic began.

In its fiscal year ended March 31, the firm’s net revenue was 1.8% higher at $5.6 billion versus $5.5 billion in fiscal 2020.

Meanwhile, in August, EA said it had hit 31 million FIFA 21 players, up 6 million from the figure in its annual report – posted back in May.

Apex Legends, the company’s free-to-play battle royale game, had reached 13 million active users by August. The game is a serious challenger to Epic Games’ hugely popular Fortnite Battle Royale, which took the world by storm back in 2017.

For those not in the know, battle royale in this context means a game where players compete to eliminate opponents and become the last player, or team, left standing. These games have a so-called ‘safe zone’ area that shrinks over time and players must avoid being trapped outside it.

The term battle royale comes from a Japanese film released in 2000 under the same name and with a similar premise.

The firm in February agreed a $2.1 billion deal for Glu Mobile, instantly scaling up its mobile games business. This as the world of video games has experienced massive growth amid the increasing availability and capability of smartphones.

With successful franchises, and continuing adaptation to trends with the Glu Mobile buy, investors should definitely consider EA.

Zynga

Speaking of mobile games, Zynga (NASDAQ: ZNGA) is a serious contender in this gigantic market.

Like EA and Activision Blizzard, the company’s shares are up 33% since 2020 began.

Plus, revenue surged 70% in 2020 to $1.7 billion from $1.0 billion. This after the firm’s Words With Friends, a multiplayer word game similar to Scrabble, achieved an all-time best for quarterly revenue and bookings in Q4.

Zynga has a $9.0 billion market cap and, in addition to Words With Friends, has popular titles like Hair Challenge, High Heels! and Tangle Master 3D – all with over 100 million worldwide downloads.

Worldwide, there are 3.8 billion smartphone users according to Statista – 48% of the population – an ever-higher climb from 2.5 billion in 2016.

As the market keeps expanding, and company keeps adding to its large number of popular titles, the potential for future growth remains high. Investing in this firm is a chance to capitalise on the trend.

Take 2 Interactive

Last in the list is Take 2 Interactive (NASDAQ: TTWO), the developer behind the Red Dead and Grand Theft Auto franchises.

With shares up 28% since 2020 began, this company—like many of the others in this list—was able to benefit from the pandemic’s surge in game stock interest.

This is clearly an excellent performer in the space and its Grand Theft Auto V game is one of the most critically-acclaimed and commercially successful titles of all time, having sold more than 145 million units.

Of course, the firm’s $18.3 billion market cap is hard to ignore as well.

In fiscal 2021, Take 2 Interactive’s net revenue climbed 10% to $3.4 billion from $3.1 billion in fiscal 2020.

Most recently, the company reiterated its outlook for fiscal 2022 (ending March) despite opting to delay the release of expanded and enhanced versions of its Grand Theft Auto V and Grand Theft Auto Online games for Grand Theft Auto V and Grand Theft Auto Online.

These had been set to launch in November, but the company is holding off “to allow additional time to further polish the final products”and these releases are now planned for March 2022.

It’s the combination of persistent strong engagement trends for its existing games and new games set to release in the rest of its fiscal year that have allowed the firm to reiterate guidance despite this setback.

Resilience, as well as the ongoing success of Grand Theft Auto, should certainly attract investor attention.

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Topics:
Gaming

Author: Anna Farley

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Anna Farley does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Anna Farley has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.