NEWS ALERT January 18, 2022, 9:42 a.m. EST: On Tuesday, Microsoft announced plans to acquire video game developer Activision Blizzard for $68.7 billion. The acquisition, Microsoft's largest, represents a substantial investment in gaming and the metaverse.
The video game industry is involved in the development, marketing, and sale of video game hardware and software. Top companies include Electronic Arts Inc. (EA) and Nintendo Co. Ltd. (NTDOY). Video game industry sales generally performed well early in the COVID-19 pandemic as business shutdowns and social-distancing measures limited peoples' entertainment options. Because consumers can play video games in the home, they have become a popular option. Though the fast-spreading Omicron variant of the coronavirus remains a threat, the reopening of the economy and relaxation of restrictions will be a test for many video game companies. The big question is whether they will be able to maintain newly minted gamers as people begin seeking more entertainment options outside the home.
Video game stocks, represented by the VanEck Vectors Video Gaming and eSports ETF (ESPO), soared in the initial phases of the pandemic, rising from mid-March of 2020 through mid-February 2021. But they have underperformed the broader market in the past year. ESPO's total return was -7.9% over the past 12 months versus the Russell 1000's total return of 24.4%. These market performance numbers and all statistics in the tables below are as of Jan. 6, 2022.
Here are the top three video game stocks with the best value, the fastest growth, and the most momentum.
These are the video game stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.
|Best Value Video Game Stocks|
|Price ($)||Market Cap ($B)||12-Month Trailing P/E Ratio|
|Nintendo Co. Ltd. (NTDOY)||57.45||53.9||13.3|
|Activision Blizzard Inc. (ATVI)||63.82||49.7||18.9|
|Playtika Holding Corp. (PLTK)||16.63||6.8||24.0|
- Nintendo Co. Ltd.: Nintendo is a Japan-based multinational consumer electronics and video game company. It develops and manufactures portable and console game machines, as well as software, playing cards, and consumer electronics. Its game consoles include Nintendo Wii, Nintendo DS, and Nintendo 3DS.
- Activision Blizzard Inc.: Activision Blizzard develops, publishes, and distributes interactive entertainment content and services for video game consoles, personal computers, and mobile devices. Its major titles include the Call of Duty and World of Warcraft franchises. Activision Blizzard has been a target of scrutiny by the U.S. government and allegations from employees in recent months. In September, the company and the U.S. Equal Employment Opportunity Commission (EEOC) settled a lawsuit over employee allegations that Activision Blizzard's culture was toxic. As a result, Activision Blizzard agreed in a consent decree to create an $18 million fund for employee compensation. The California Department of Fair Employment and Housing (DFEH) filed a motion to intervene in October, arguing that the consent decree could potentially allow Activision Blizzard to destroy evidence. The California agency has its own separate case against the company. In December, a judge denied the motion to intervene. The DFEH is appealing the judge's decision. Despite the controversy, Microsoft announced on Jan. 18, 2022, that it plans to acquire Activision Blizzard for $95 per share, valuing the company at $68.7 billion.
- Playtika Holding Corp.: Playtika is an Israel-based digital entertainment holding company. Through subsidiaries, the company offers a diverse portfolio of free-to-play games that are synchronized across devices and platforms. It has 34 million monthly active users. For Q3 2021, ended Sept. 30, net income fell by 32.9% year-over-year (YOY), while revenues climbed by 3.7%. Revenue growth was driven by strong performances by the company's Bingo Blitz and Solitaire Grand Harvest games.
These are the top video game stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric is susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.
|Fastest-Growing Video Game Stocks|
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Inspired Entertainment Inc. (INSE)||13.02||0.3||1,400||29.1|
|Enthusiast Gaming Holdings Inc. (EGLX)||2.65||0.3||N/A (see company description)||180.9|
|Sea Ltd. (SE)||192.76||106.9||N/A (see company description)||121.8|
- Inspired Entertainment Inc.: Inspired Entertainment is a gaming technology company. It provides content, platforms, and other services to lottery, betting, and gaming companies. On Jan. 4, the company announced that it had acquired Sportech Lotteries Inc., a subsidiary of Sportech PLC. Sportech Lotteries' principal asset is its lottery systems contract with Lotería Electrónica Internacional Dominicana S.A. (LEIDSA ) of the Dominican Republic. Sportech's contract with LEIDSA was originally scheduled to expire by 2025. The lottery systems contract has been extended through 2035 concurrently with the acquisition. The $12.5 million acquisition expands Inspired's reach both geographically and into the lottery sector.
- Enthusiast Gaming Holdings Inc.: Enthusiast Gaming is a Canada-based video game and eSports company. It is focused on developing a social media platform for video game and eSports fans to connect worldwide. Because the company reported negative EPS in the most recent quarter, an EPS growth rate could not be calculated for the above table.
- Sea Ltd.: Sea is a Singapore-based Internet and mobile platform company. It provides online gaming services, manages third-party online marketplaces, and provides various financial services, such as e-wallet and payments services. The company reported widening net losses for Q3 2021, ended Sept. 30, as revenue more than doubled YOY. Strong performances across all segments drove revenue growth, while cost of revenue and sales and marketing expenses grew substantially as well. Because the company reported negative EPS in the most recent quarter, an EPS growth rate could not be calculated for the above table.
These are the video game stocks that had the highest total return over the past 12 months.
|Video Game Stocks With the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Inspired Entertainment Inc. (INSE)||13.02||0.3||108.3|
|Avid Technology Inc. (AVID)||30.25||1.4||81.6|
|Sea Ltd. (SE)||192.76||106.9||-0.8|
|VanEck Vectors Video Gaming and eSports ETF (ESPO)||N/A||N/A||-7.9|
- Inspired Entertainment Inc.: See above for company description.
- Avid Technology Inc.: Avid Technology develops software and integrated solutions for video and audio content creation, management, and distribution. Its platform and tools provide content creation solutions for the media and entertainment industry.
- Sea Ltd.: See above for company description.
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Microsoft. "Microsoft to acquire Activision Blizzard to bring the joy and community of gaming to everyone, across every device." Accessed Jan. 18, 2022.
YCharts." Financial Data." Accessed Jan. 18, 2022.
The Verge. "California appeals decision regarding Activision Blizzard settlement." Accessed Jan. 18, 2022.
Playtika Holding Corp. "Playtika Holding Corp. Reports Third Quarter 2021 Results." Accessed Jan. 18, 2022.
Inspired Entertainment Inc. "INSPIRED ANNOUNCES ACQUISITION OF SPORTECH LOTTERIES." Accessed Jan. 18, 2022.
Enthusiast Gaming Holdings Inc. "Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2021," Page 2. Accessed Jan. 18, 2022.
Sea Ltd. "Sea Limited Reports Third Quarter 2021 Results," Pages 4-6. Accessed Jan. 18, 2022.