Will Gaming Stocks Continue to Do Well Post-Pandemic?
Zacks Investment Research | Nov 19, 2020 03:59AM ET
The gaming market has been a major beneficiary of the pandemic as people who were forced to stay home spent more time on their mobile phones, PCs and consoles. While that also pushed sales of food and beverages (because most people eat and drink while playing), in this article we are focusing on games.
The need to maintain social distancing and desire to do things socially (or in a group, as is possible with many games) combined to create record gameplay and game viewing in the first half of 2020.
Additionally, there hasn’t been a big decline when things started opening up because social activity in public places is still limited with safety protocols making things far less enjoyable.
Also, a gaming enthusiast is a different animal altogether. Games foster a competitive feeling that itself boosts the desire to play more. And the gaming market has changed a lot over the last few years with many more women and older people becoming active participants.
We also have a fast-growing segment in game viewing that didn’t even exist a few years back.
The pandemic has not only encouraged more first-time players, but has also brought back at least some earlier enthusiasts that had dropped out because of the pressures of work or raising a family.
So, Newzoo estimates that the gaming market will grow 19.6% in 2020 to $174.9 billion, up $15.6 billion from its earlier forecast provided after the close of the first quarter. China is expected to be the biggest market this year, with $44 billion in sales, followed closely by the U.S. with $41.3 billion. These two countries will account for 49% of global sales. A breakdown by region shows the Asia/Pac region accounting for 48%, North America 26%, Europe 19%, Latin America 4% and the Middle East & Africa 3%.
Estimates were raised across the PC, mobile (the largest) and console (fastest growth this year) segments, with the PC segment now expected to bring in $37.4 billion, mobile $86.3 billion and console $51.2 billion. That’s up from $36.9 billion, $77.2 billion and $45.2 billion in the last forecast.
Newzoo maintains its forecast for the market to touch $217.9 billion by 2023. So the growth rates we’ve seen this year may not hold up. However, the market should still grow quite fast with expansion into more markets and deeper penetration of existing ones.
Given this backdrop, it isn’t surprising that gaming stocks, part of the Zacks-classified Toys - Games – Hobbies industry (top 10% of industries), are looking good at the moment-
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Activision Blizzard (NASDAQ:ATVI), Inc. ATVI for one has a Zacks Rank #2, which is equivalent to a Buy rating. The company’s revenue is expected to be up 28.0% and 2.4%, respectively in 2020 and 2021. Earnings are expected to grow 51.6% this year and 3.7% in the next. The Zacks Consensus Estimates for 2020 and 2021 are up 16 cents (4.9%) and 20 cents (6.0%), respectively, in the last 30 days.
Next, we have #2-ranked Glu Mobile (NASDAQ:GLUU) Inc. GLUU , which is also seeing similar growth in numbers. Its 2020 and 2021 revenue estimates call for growth of 31.3% and 10.7%, respectively. Its earnings estimates also represent growth of 141.2% and 33.6%, respectively. And the Zacks Consensus Estimates for 2020 and 2021 are up 6 cents (17.1%) and 13 cents (31.7%), respectively, in the last 30 days.
Zacks #2-ranked Mattel (NASDAQ:MAT), Inc. MAT is expected to grow revenue a respective 0.5% and 4.9% in 2020 and 2021. But its earnings are expected to soar 223.3% and 33.7% these two years. Just 30 days ago, analysts were expecting the company to report a loss of 12 cents in 2020. They currently expect a profit of 37 cents. The 2020 expected earnings of 20 cents has now gone up to 49 cents, a 145% increase.
JAKKS Pacific, Inc. JAKK also carries a Zacks Rank #2. The company is on track to report a revenue loss of 16.0% this year, followed by a 7.1% increase in 2021. Earnings will follow suit, dropping 31.8% this year and coming back with 51.0% growth in the next. The expected loss per share for 2020 dropped 50 cents (4.9%) in the last 30 days. For 2020, it’s down $1.49 (24.0%).
Rounding out the list is #2-ranked Nintendo Co (OTC:NTDOY). NTDOY , which is expected to see difficult comparisons next year. Current estimates call for a 22% revenue increase this fiscal year (ending March 2021) followed by a decline of 7.3% in 2022. However, 2022 revenue is expected to be much higher than 2020, so it’s more of a correction from this year’s over-heated market rather than a weakness in the business.
Similarly, earnings are expected to grow 47.0% this year, followed by a 5.2% decline in the next. Needless to say, 2022 earnings will be much higher than 2020 levels. Earnings estimates for the current fiscal year are up 44 cents (13.7%). For the next fiscal year, they are up 16 cents (4.8%).
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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