The mobile games business continues surging forward. Global sales of smartphones increased 23% in 2014 year over year, while the average time playing mobile games jumped 57% from 2012 to 2014.
However, the business depends not just on the numbers of these users and the length of their playing time, but on their willingness to concede to in-app purchases in the free-to-play games littering the iOS and Android app stores.
To that respect, Liam Callahan, an analyst for the NPD Group, said more than twice the number of gamers are snapping up in-app content than they did in 2012.
As the mobile gaming markets continues to increase in users and spending, here are three mobile game stocks to watch, each with solid strategies for continued growth in the burgeoning mobile market.
Mobile Game Stocks: NetEase, Inc (NTES)
NetEase, Inc (ADR) (NASDAQ:NTES), a Beijing company known for the high-traffic 163.com and a Chinese license to sell “World of Warcraft” from Activision Blizzard (NASDAQ:ATVI), is now a fierce competitor in the mobile space. Several analysts released fawning “buy” recommendations, with a high price target of $116 — 18% higher than the current stock price.
NTES currently has an enterprise value of nearly $10 billion, and is eying further growth by expanding its reach from China to Redwood Shores, California by way of a US headquarters, and its first major western release, Speedy Ninja, is planned for a summer iOS and Android release.
“We are building games that people want to play and are excited to launch them into global markets,” said David Ting, general manager of NetEase North America.
From a technical standpoint, NTES is currently nearing oversold territory, with its RSI down in the high-30s. That means it could be preparing for a solid move back upward.
When buying stocks in the mobile arena, an important indicator of future success is the ability to grow. Growth requires cash, and NTES is one of the best stocks to invest in for mobile growth thanks to NTES’s trailing-12-month free cash flow of $5.2 billion.
Mobile Game Stocks: King Digital Entertainment (KING)
Daily active users of King Digital Entertainment PLC (NYSE:KING) increased 20% year over year to 149 million, while KING exceeded revenue expectations with $545 million to Wall Street’s $515 million. These stats are in no small part thanks to its iOS and Android Bubble Witch 2 Saga and Candy Crush Soda Saga titles.
KING specializes in “freemium” games (meaning free-to-play, but with additional in-game items that you can purchase), and continues to refine its capabilities to track what its users want out of their gameplay experience. KING uses the data to create games with the intent of maximizing in-app purchases.
KING doesn’t want to come off as another one-hit wonder like Zynga Inc. (NASDAQ:ZNGA). To prove it’s serious about the mobile games space, KING bought Seattle-based game company Z2 to boost productivity.
KING stock should be particularly attractive to anyone who follows the Benjamin Graham style of investing — looking for cheap, financially stable stocks that will grow over time. King’s cash of roughly $900 million exceeding the company’s (nonexistent) long-term debt. Its moderate P/E of 8.38 makes KING stock one of the best stocks to invest in when it comes to mobile gaming.
Hot Mobile Game Stock: Glu Mobile Inc (GLUU)
Glu Mobile Inc (NASDAQ:GLUU) handily surpassed analyst revenue expectations by about $10 million in its last earnings call, and GLUU plans to keep the momentum going strong.
Fresh off stellar success with Kim Kardashian: Hollywood, Glu proves it is a firm believer in the adage, “if it isn’t broke, don’t fix it,” as it recently announced a deal with Katy Perry for another mobile iOS and Android title in late 2015.
Between its earnings beat and the Katy Perry deal, GLUU stock shot up 36% since the beginning of February. Growth investors should note that Glu Mobile’s annual EPS increased each year for the past five years.
Glu’s plans for the future surround the release mobile games coinciding with impending Hollywood blockbusters like the new James Bond movie Spectre and Terminator Genisys.
Glu Mobile CEO, Niccolo de Masi, had this say:
“We intend to continue expanding upon our entertainment partnerships on an ongoing basis and have a number of later-stage discussions underway. I anticipate Glu titles having the support of over 400 million social channel followers by the end of 2016.”
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
