Speculation is rife about video game companies’ ability to sustain their business model. That is because the popularity of the free-to-play game, Fortnite, will surely affect big gaming franchises that ask players to pay upfront and then make additional digital purchases.
However, sales of console games increased in the U.S. last year. What’s more, Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) saw their gaming-related revenues improve as the number of users of their consoles, XBOX Live and PS+, grew meaningfully. And top-notch video game stocks have more room to run. After all, the video gaming industry is expanding, and its sales should double to $300 billion in the next decade.
In a nutshell, esports, mobile gaming, subscription models, streaming services and significant sales in China will act as long-term catalysts for video-game stocks. Last but not least, new game releases this fall will surely increase game makers’ revenue.
For instance, Activision Blizzard (NASDAQ: ATVI) is poised to release more games that should be popular. Similarly, Electronic Arts’ (NASDAQ: EA) upcoming Star Wars: Fallen Order game, due to be released on Nov. 15, and Take-Two’s (NASDAQ: TTWO) Borderlands 3, due out Sept. 12, should eventually generate impressive sales.
Pundits estimate that EA will sell 12 million to 13 million copies of Star Wars: Fallen Order, way more than the 9 million Star Wars: Battlefront games that it sold in the third quarter of its fiscal 2018.
And when it comes to Take-Two Interactive Software’s Borderlands 3, analysts, on average, believe it will sell nearly 9 million units. Given these upbeat forecasts, it’s worth taking a look at these red-hot gaming stocks.
Take-Two’s release of Red Dead Redemption 2 was very successful. The company was able to sell 23 million copies of the game, making it one of the most memorable launches in recent times. Take-Two has expanded its product pipeline with major releases like Sid Meier’s Civilization VI and Gathering Storm.
TTWO stock has been on a tear lately, with the company outperforming the Toys – Games – Hobbies industry so far this year (+26.8% vs +21.2%).
TTWO’s earnings are expected to climb 57.1% this quarter, much higher than the industry’s estimated rise of 3.6%. The Zacks Consensus Estimate for TTWO’s current-year earnings has risen 6.2% over the past 60 days.
Like Red Dead Redemption 2, Activision Blizzard’s Call of Duty: Black Ops has been a huge success since its launch last October.
In fact, Activision Blizzard’s new games Hearthstone, World of Warcraft, and Overwatch have already received a positive response from players. And in the last reported quarter, Activision Blizzard posted revenues of $1.21 billion, beating management’s guidance of $1.15 billion.
ATVI stock did underperform the stock market last year, but ATVI stock has bounced back recently. Activision Blizzard stock has outperformed the Toys – Games – Hobbies industry in the past month (+12.2% vs +6.3%).
ATVI stock is expected to gain a healthy 15.4% next year, substantially above the S&P 500 index’s projected rise of 5.4%. The Zacks Consensus Estimate for ATVI’s current-year earnings has risen 0.9% over the past 60 days.
Zynga (NASDAQ: ZNGA) is one of the fastest growing mobile gaming platforms in the world. Its annual bookings came in at $1 billion last year. Zynga is well-positioned to rapidly grow going forward, benefiting ZNGA stock.
In the past 60 days, six 2019 earnings estimates for ZNGA stock have risen, while one dropped.
The company’s expected earnings growth rate for the current year is 187.5%, surpassing the Gaming industry’s projected rise of 5.5%. ZNGA stock has outpaced the industry on a year-to-date basis (+55.8% vs +9.5%).
TTWO stock, ATVI stock and ZNGA stock have a Zacks Rank pf #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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