San Francisco-based social game services provider Zynga Inc.’s (ZNGA) total revenue increased 40% year-over-year to $704.7 million in its third quarter (ended September 30, 2021). However, its total costs and expenses increased 14.7% year-over-year to $717 million. Its cash and cash equivalents came in at $1.09 billion for the period ended September 30, 2021, compared to $1.36 billion for the period ended December 31, 2020. Along with weak financials, its 0.35% trailing-12-month CAPEX/Sales ratio is 90.8% lower than the 3.77% industry average. And its trailing-12-month net income margin is negative compared to the industry 5.73% average.
The stock has declined 38.5% in price over the past six months to close yesterday’s trading session at $6.34. Furthermore, JPMorgan analysts recently reduced ZNGA’s price target to $10 from $12. Also, in terms of forward EV/S ratio, the stock’s 2.59x is higher than the 2.43x industry average. And its 2.63x forward P/S is 50.6% higher than the 1.75x industry average. So, it may not be a wise bet to cash in on the industry’s growth.
However, the demand for video games has skyrocketed due to the COVID-19 pandemic-led remote lifestyle. While easing restrictions this year have been shifting consumers’ focus to outdoor activities, the increasing availability of innovative online, mobile, and cloud gaming should keep driving the industry’s growth. According to a Fortune Business Insights report, the global gaming market is expected to grow at a 13.2% CAGR between 2021 and 2028. Therefore, we think investors seeking to benefit from the industry’s growth could instead bet on quality video game stocks Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA), and Playtika Holding Corp. (PLTK) instead.
Click here to check out our Video Game Industry Report for 2021
Activision Blizzard, Inc. (ATVI)
ATVI, together with its subsidiaries, develops and publishes interactive entertainment content and services across the globe. The company operates through three segments: Activision Publishing, Inc.; Blizzard Entertainment, Inc.; and King Digital Entertainment.
On October 28, 2021, ATVI announced the acquisition of Barcelona-based mobile game developer Digital Legends. Rob Kostich, President, ATVI, said, “This is an incredible team of development pros at Digital Legends, and we couldn’t be more excited to welcome them to the Activision team. This is a great step forward as we continue to build additional world-class development resources focused on creating exciting and innovative content for our players.”
ATVI’s total revenues increased 5.9% year-over-year to $2.07 billion for the third quarter, ended September 30, 2021. The company’s operating income came in at $824 million, up 5.9% year-over-year. While its net income increased 5.8% year-over-year to $639 million, its EPS came in at $0.82, up 5.1% year-over-year.
Analysts expect ATVI’s revenue and EPS to increase 3.6% and 9.5%, respectively, year-over-year to $8.73 billion and $3.80 in its fiscal 2021. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock is currently trading 4.7% above its 52-week low of $56.40, which it hit on December 3, 2021, to close yesterday’s trading session at $59.07.
ATVI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ATVI has a B grade for Value and Quality. In the Entertainment - Toys & Video Games industry, it is ranked #5 out of 23 stocks. Click here to see the additional POWR Ratings for Momentum, Growth, Sentiment, and Stability for ATVI.
Electronic Arts Inc. (EA)
A global leader in digital interactive entertainment, EA develops, markets, publishes and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It has more than 450 million registered players around the world. EA is headquartered in Redwood City, Calif.
On November 3, 2021, Andrew Wilson, CEO of EA, said, “Thanks to our incredibly talented teams, we’re excited to deliver more amazing experiences this holiday season, and connect hundreds of millions of players around the world through our EA SPORTS games, Apex Legends, Battlefield 2042 and more.”
EA’s net revenue increased 58.6% year-over-year to $1.83 billion for its fiscal 2022 second quarter, ended September 30, 2021. Its gross profit increased 54% year-over-year to $1.33 billion. Also, its operating income came in at $340 million, up 128.2% year-over-year.
For its fiscal 2022, EA’s revenue and EPS are expected to grow 23.5% and 19.8%, respectively, year-over-year to $7.65 billion and $6.89. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock is currently trading 4.1% above its 52-week low of $120.08, which it hit on December 1, 2021, to close yesterday’s trading session at $125.
EA has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Growth, Value, Sentiment, and Quality. EA is ranked #3 of 23 stocks in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings for EA (Momentum and Stability).
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK develops mobile games in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. The company owns a portfolio of casual and casino-themed games.
On October 11, 2021, PLTK’s game studio Wooga announced the launch of Switchcraft, a narrative-based match-3 game. Nai Chang, managing director at Wooga in Berlin, said, “In the last four years, we’ve changed our company vision to really focus on story-driven casual games. In my mind this is what sets us apart from all other games in the genre. Our focus on the story is clear when you first start playing. The amount of narrative world building and immersion is what Switchcraft brings for mobile games.”
For the third quarter, ended September 30, 2021, PLTK’s revenues increased 3.7% year-over-year to $635.90 million. The company’s total assets came in at $2.73 billion for the period ended September 30, 2021, compared to $1.78 billion for the period ended December 31, 2020. Its cash and cash equivalents came in at $894.10 million, compared to $520.10 million for the same period.
PLTK’s revenue is expected to be $2.87 billion in fiscal 2022, representing an 11.5% year-over-year rise. In addition, the company’s EPS is expected to increase 179.2% year-over-year to $0.67 in the current year. It closed yesterday’s trading session at $18.38 and is currently trading 13.1% higher than its 52-week low of $16.25, which it hit on December 2, 2021.
It is no surprise that PLTK has a B grade for Value and Quality in our POWR Ratings system. The stock is ranked #7 in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings for PLTK (Stability, Momentum, Growth, and Sentiment).
Click here to check out our Video Game Industry Report for 2021
ATVI shares were trading at $57.62 per share on Friday afternoon, down $1.45 (-2.45%). Year-to-date, ATVI has declined -37.64%, versus a 26.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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