Electronic Arts Inc. (NASDAQ:EA), Take Two Interactive Software Inc (NASDAQ:TTWO) and Activision Blizzard, Inc. (NASDAQ:ATVI) have all had a very good year so far. EA stock is up 49.4%, TTWO stock is up 104% and ATVI stock is up 75.6%.
Those are some very respectable moves. And it would be understandable if I was writing to tell you it’s time to take profits, let these hot stocks cool and we’ll step back in later.
But that’s not the case.
These three stocks are already consolidating and are getting ready for a move to the next level. Plus, their earnings are growing, so even with their massive stock gains, they’re still relatively good values. There are many other stocks in this space that have much higher valuations without the solid foundations this trio possess.
There are three significant trends in gaming that will take these stocks to new levels in coming quarters and years.
First, there is online gaming. This is where the big money is expected to be in coming years. While gaming platforms are still selling well, the move to mobile and online continues to gather momentum with no signs of stopping.
Second, virtual reality (VR) and augmented reality (AR) games are gaining traction. VR and AR are the next generation in gaming tech and it’s the big players with strong IPs (aka, games) and deep pockets that will have a huge advantage as these technologies develop.
Finally, there is seasonal demand and new pricing. First, the holiday season is approaching and new releases are timed for this. Sales should grow in the coming quarter simply on seasonal demand. Also, some are moving to new pricing models where you can subscribe rather than buy an IP outright. Volume-based pricing could be a big winner in online gaming, where the margins are already huge.
EA, TTWO and ATVI each have strong IPs and significant competitive moats around their businesses. And each continues to execute well in this dynamic and competitive sector.
What’s more, gaming is now much more than a U.S.-based activity. More and people around the world are adopting gaming, especially online gaming. As high-speed mobile broadband continues to improve in distribution and quality, it will gain more customers and the big brands will be their first choice.
Also, in China, where non-Chinese social media is having a difficult time getting through government oversight, games aren’t as tightly regulated, so China and Asia remain huge growth opportunities.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.