Gaming is big business. However, being a gamer is no longer simply about teenagers playing Fortnite instead of doing their homework. It’s as big as the billion-dollar esports industry. Yet it’s also as free, and ubiquitous, as the Candy Crush game that is found on virtually every smartphone. In that regard, we are all gamers.
An increasing number of video games are no longer anchored to a console (e.g. Fortnite). However, the video game market is highly cyclical. And a big reason for that has to do with the cycle for video game consoles.
In that regard, 2019 was a cruel year for video game stocks. Companies such as Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) announced that they were waiting until 2020 to release new gaming consoles, and the sales and the stocks of video game manufacturers suffered.
But it looks like the wait will soon be over. And if history is any indication, investors can be looking to pocket enormous gains. For example, in the last video game boom cycle, investors saw gains of 8x to 18x in just six years.
And the good news is there is no shortage of stocks to choose from. Here are three video game stocks that stand to benefit from the upcoming video game bull market.
Video Game Stocks: Activision Blizzard (ATVI)
A new PlayStation and Xbox will certainly help boost sales for Activision Blizzard (NASDAQ:ATVI). The company is the developer of such popular games as Call of Duty, Hearthstone and Overwatch.
But those are scheduled for later in the year. What will get investors excited for the remainder of 2020? Activision recently announced a deal with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) that will make YouTube the exclusive streaming provider of ATVI’s esports league. Prior to the deal with YouTube, Activision’s esports were streamed on Amazon’s (NASDAQ:AMZN) Twitch. In a related announcement, Activision announced that Google Cloud will become its preferred provider for online gaming.
The popularity of esports is helping to spur video game sales, but the real catalyst for this deal is in advertising revenue. In 2019, Activision used Nielsen’s average-minute audience (AMA) ratings to measure how its Overwatch league was drawing in viewers in comparable numbers to traditional sports. The 313,000 viewers were enough to attract the attention of big-name sponsors such as Toyota (NYSE:TM). And with the YouTube deal in place, the number of viewers is bound to come up. And with more viewers comes more attention from advertisers.
Electronic Arts (EA)
While Electronic Arts (NASDAQ:EA) may not have a deal in place like the kind Activision has with YouTube, the company is enjoying some recent success. The company has already posted exceptional sales for its latest Star Wars title, Star Wars Jedi: Fallen Order. According to COO and CFO Blake Jorgensen, EA had originally forecast sales of 6 million to 8 million units for the fiscal year. It has since increased that forecast to 10 million units.
And the company is also expecting to expand its mobile business. Right now, mobile sales only make up about 10% of the company’s revenue. However, the company is banking on two new titles coming in 2020. The company is also in a nice cash position. This means it could look for acquisition targets similar to how Activision acquired King Digital Entertainment (the creator of Candy Crush).
And you can’t forget that EA does stand to benefit from the new console launches. The company has a cult-like following for both its Madden and FIFA franchises. Those will have new titles right about the time the new consoles come out.
Take-Two Interactive Software (TTWO)
Take-Two Interactive (NASDAQ:TTWO) appears to be a case of a good stock getting punished by poor earnings. In the last five years, TTWO stock is up over 320%. True, the stock has had some bumps along the way. That’s the nature of the sector. But as I look over the earnings report, there’s nothing that jumps out at me as alarming.
The company has three wildly successful titles that remain popular. NBA 2K is a staple of my teenage son’s gaming repertoire. And it also has the Grand Theft Auto and Red Dead franchises. If I am cautious about anything, it’s not to underplay the departure of Dan Houser.
Houser is the creative vice president for Rockstar Games, a subsidiary of Take-Two. Houser created the voice for the Grand Theft Auto series. He will be leaving the company in March 2020. Storytelling is a key ingredient to a video game’s success and it will bear watching how TTWO will handle this departure.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
