The gaming industry witnessed strong demand during the COVID-19 pandemic as it provided a means to stay entertained amid the remote lifestyle. While the situation has significantly normalized, the sector continues to see rising demand due to enhanced offerings with growing technological innovation.
Increasing investments in AR and VR and the use of cutting-edge three-dimensional technologies to develop gaming platforms are expected to be major drivers of the global gaming industry’s growth. The gaming market is projected to grow at a 7.3% CAGR between 2022-2026.
However, increased regulations in this space are proving to be a significant challenge. And we think it could be wise to avoid Roblox Corporation (RBLX), considering its bleak financial positioning. But we think fundamentally sound gaming stocks Electronic Arts Inc. (EA) and Playtika Holding Corp. (PLTK) could be quality additions to one’s portfolio.
Stock to Avoid:
Roblox Corporation (RBLX)
RBLX operates as a developer and operator of an online entertainment platform. The company’s offerings include Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud.
RBLX’s loss from operations rose 19.1% from its year-ago value to $170.27 million in the fiscal second quarter ended June 30. The company’s net loss attributable to common stockholders grew 25.9% from the same period last year to $176.44 million. Net loss per share attributable to common stockholders increased 20% year-over-year to $0.30.
Street expects RBLX’s EPS to come in at a negative $0.32 for the third quarter ending September 2022, indicating a decrease of 149.7% from the prior-year period. The consensus revenue is estimated to be $683.51 million for the same quarter.
RBLX’s shares have declined 63.3% year-to-date to close its last trading session at $37.91. It slumped 66.5% over the past nine months.
RBLX’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, translating to Strong Sell in our rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RBLX also has an F grade for Stability and a D in Growth, Value, Momentum, and Sentiment. It is ranked last in the 22-stock Entertainment – Toys & Video Games industry. To see additional POWR Ratings for Quality for RBLX, click here.
Stocks to Buy:
Electronic Arts Inc. (EA)
EA develops, markets, publishes and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide.
On August 26, EA announced a series of new multi-year partnerships and in-game integrations, coming in EA Sports™ FIFA 23 and heading into EA Sports FC, that will help the company deliver fans the most authentic and immersive football gaming experience with over 19,000 players, 700 teams, 100 stadiums and 30 leagues across the global sport. This should expand the company’s existing customer base.
EA’s total net revenue increased 13.9% year-over-year to $1.77 billion for the fiscal first quarter ended June 30, 2022. Its net income increased 52.4% year-over-year to $311 million. The company’s operating income increased 37% year-over-year to $441 million. In addition, its EPS came in at $1.11, representing an increase of 56.3% year-over-year.
Analysts expect EA’s EPS for the fiscal year ending March 2023 to increase 2.3% year-over-year to $7.19. Its revenue is expected to increase 6.3% year-over-year to $8 billion. The company also surpassed street EPS estimates in all the trailing four quarters.
The stock slumped 1.3% over the past nine months to close the last trading session at $124.73.
EA’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our POWR Ratings system.
EA also has a B grade in Quality, Sentiment, and Value. It is ranked #3 in the Entertainment – Toys & Video Games industry. Click here to access EA’s Growth, Momentum, and Stability ratings.
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK develops mobile games worldwide. The company owns a portfolio of casual and casino-themed games.
PLTK’s revenues increased marginally year-over-year to $659.60 million in the fiscal quarter ended June 30, 2022. For the six months ended June 30, the company’s comprehensive income stood at $119.10 million, up 1.9% from the prior-year period.
The consensus revenue estimate of $646.79 million for the fiscal quarter ending September 2022 represents a 1.7% improvement year-over-year. Also, for the ongoing fiscal year, the consensus revenue estimate of $2.63 billion represents a 1.9% year-over-year increase.
The stock gained marginally intraday to close its last trading session at $10.27.
The company has an overall rating of B, translating to Buy in our proprietary rating system. PLTK is rated A in Value and a B in Quality. Within the same industry, it is ranked #6.
Beyond what is stated above, we’ve also rated PLTK for Growth, Momentum, Stability, and Sentiment. Get all PLTK ratings here.
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EA shares were trading at $124.67 per share on Wednesday afternoon, down $0.06 (-0.05%). Year-to-date, EA has declined -5.09%, versus a -16.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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