Go ahead, admit it. When you think of gaming you think of some nerdy teenager locked in his room, playing some shoot em’ up game for hours on end, with soda cans and potato chips everywhere. The fact of the matter is over the past 20 years gaming has skyrocketed in popularity, and what once was almost entirely a console driven world, has jumped onto smartphones with mobile gaming in a huge way.
A recent research report from Jefferies sources NewZoo for some incredible data on the gaming world and the potential for continued massive growth for the sector. Not only are people now playing well into adulthood, but more women are joining the gaming hordes. The report lists seven top reasons for the stunning growth, and we screened our 24/7 Wall St. research database and found three top stocks to own for 2017 and beyond.
Here are the seven top reasons for incredible worldwide growth in gaming.
- Games provide players with an incredible value based on the dollar per hour used.
- The products are highly addictive, and some players are on them for years.
- As the Gini coefficient, which is a statistical measure of the degree of variation or inequality represented in a set of values, used especially in analyzing income inequality grows, gaming provides escapism.
- Video games continue to improve and innovate as developers continue to become ever more sophisticated and creative.
- The rise of in-game spending prolongs engagement of a specific title and provides a high margin recurring stream for developers.
- Consumers are playing games much later in life. There is a new Madden Football commercial with NBA stars James Harden and Chris Paul playing. Hardly aimed at the 12 year old.
- The male/female split in the gaming universe has become much more equalized.
Given those incredible reasons, and the additional fact that the Asian-Pacific region with its huge population numbers is helping to really drive the global gaming figures, as evidenced by a 13.6% compounded annual growth rate between 2013 and 2020 in China, it makes sense to own one or more of these three top stocks.
This company remains a top pick on Wall Street and SunTrust says to buy the dip now. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.
The company reported outstanding results that the beat estimates and raised forward guidance. SunTrust feels that the guidance is conservative, and with multiple game releases coming the rest of this year, the stock remains a top buy.
The key drivers for the company include the planned launches of “Call of Duty: WWII” (November 3 release date), for which management is already guiding to sales growth for the franchise in the fourth quarter, and “Destiny 2,” which is scheduled to debut September 8. Wall Street estimates are for 19 million full game unit sales for the former and 9.2 million for the latter.
Shareholders receive a 0.46% dividend. The SunTrust price target for the Buy-rated stock is $75, and the Wall Street consensus target is $64.25. Shares closed Wednesday at $64.
This leading video game developer should benefit from not only the continuing rise in new console sales, but also the rising trend of mobile gaming. Electronic Arts Inc. (NASDAQ: EA) produces top-selling games and related content and services under the EA brand in various categories, including action-adventure, role-playing, racing and first-person shooter games.
The company, which is very well known for its EA sports games like Madden Football, has made the move into mobile play by adapting many of the top franchise titles, which have been popular for years, into the mobile arena.
The company posted strong quarterly results in July, but the stock sold off some as guidance was disappointing. The shares have recovered nicely and look to go much higher. Top-selling Star Wars Battlefront II looks huge and management expects shipments to match Star Wars Battlefront (14 million units in fiscal 2016).
Merrill Lynch has a Buy rating and a $131 price target. The consensus target is $124.81, and shares closed on Wednesday at $117.
Take-Two Interactive Software
This top video game producer has cashed in with some super-hot titles. Take-Two Interactive Software (NASDAQ: TTWO) offers its products under labels such as Rockstar Games and 2K. It develops and publishes action/adventure products under the Grand Theft Auto brand, as well as other franchises, including Civilization, Borderlands, Bioshock and Red Dead under the Rockstar Games label. The Grand Theft Auto franchise has been one of the best-selling video games ever released.
The company also posted a fiscal first-quarter beat, driven by strong contribution from Grand Theft Auto and continued growth in digital spend. The research report noted this:
The key takeaway from this update, in our opinion, was the sustained momentum for the GTA V franchise, including a record quarter for GTA Online, the largest contributor to recurrent consumer spending (+71% year-over-year and; 58% of non-GAAP revenue). And based on the fiscal first quarter beat and traction for its titles, management made material upward adjustments to fiscal 2018 guidance, and continues to project record results in fiscal 2019.
The Stifel price target on the Buy-rated stock is $96 and compares with the consensus price objective of $95.19. Shares closed near that level Wednesday at $95.82.
Needless to say, this is an incredible growth machine, which will not be going away anytime soon. The only tap-the-breaks issue is that these stocks have all have had huge runs and are expensive. It makes sense to buy partial positions and wait for a market pullback to add more.