“Screen time” wasn’t typically an option in my house when I was kid. We had a television, of course, but we just couldn’t turn it on very often.
In fact, whenever my dad would catch me trying to sneak in some Saturday morning cartoons, he’d whisk me out into the yard and put me to work. Within seconds, I’d find myself with a shovel, saw or pipe wrench in my hands.
I didn’t live a life of deprivation, though. I never missed an episode of Gilligan’s Island, Get Smart or The Wild Wild West.
Back in those days, the living room TV was the only screen in the house. No PCs, laptops, tablets or smartphones.
Screen Time Growing
“Screen time” now is no longer just an occasional mode of entertainment. It is a lifestyle.
Today’s kids — and most adults — leap from one screened device to the next, like a frog jumping across lily pads. Being without a device is simply not an option.
Americans spend an average of 6.3 hours per day interacting with digital media, which is more than double the hours they spent on screens 10 years ago.
A growing number of adults report being online “almost constantly.” And as anyone who lives in a home with teenagers can attest, “almost constantly” seems to be the norm of the under-20 crowd … especially now that the novel coronavirus has shut down schools, summer camps, travel and most other “offline” activities.
Thanks to these shutdowns, U.S. kids ages 6-12 are spending 50% to 60% more time in front of screens daily. Moreover, due to school going online, our young ones are increasing their visits to kid-focused apps and digital services by nearly 70%. That’s according to data from SuperAwesome, a children’s technology company.
“Overall, kids are effectively going to be spending 2.5 to 3 times more hours of day in front of a digital screen than they historically would have,” Dylan Collins, CEO of SuperAwesome, said.
Only time will tell if the modern screen-time surge produces unhealthy consequences. Staring at a screen for hours a day doesn’t seem particularly healthy, but I’m no expert.
So I’ll leave that assessment to the researchers and scientists.
What I do concern myself with here is the profit component.
We remain a nation of couch potatoes, but the objects of our screen-time affection are changing all the time.
That means the flows of money from our pockets into screen-time companies changes frequently, too.
So today, let’s talk about one place where the newest waves of capital are crashing … video games.
And about some of my favorite trades in that space.
Three of the Best
Video gamers invented the “shelter in place” lifestyle, years before it entered the American vocabulary.
So it should come as no surprise that video-gaming has become the new national pastime for millions of home-bound Americans.
That’s why the share prices of Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA), and Take-Two Interactive Software (NASDAQ:TTWO) are trading close to all-time highs. These leaders of the video-gaming industry are enjoying boomtime conditions.
These stocks can continue to fly high, even after the Covid-19 pandemic winds down.
Activision is particularly compelling.
For starters, the company’s total number of monthly active users (MAUs) has soared to 428 million — 30% higher than one year ago.
By itself, this trend could power strong earnings growth. But at the same time, the company is rolling out brand-new versions or enhancements of its uber-popular Call of Duty and World of Warcraft franchises.
On Tuesday, Activision reported adjusted earnings per share (EPS) of 81 cents, 52.8% higher than the 53 cents from the same period of the year prior and 19% better than Wall Street’s estimate of 68 cents. The company’s revenue of $1.93 billion is up 37.9% from $1.4 billion in the second quarter of 2019, and it also beat analysts’ estimate of $1.7 billion.
Bobby Kotick, CEO of Activision Blizzard, said this about the earnings results:
“Our record engagement resulted in greater revenue and earnings per share than previously forecast. While economic uncertainty could have an impact on our near-term results, the initiatives that drove our growth for the first half of the year should also provide the foundation for long-term growth.”
Activision also said it’s expecting adjusted EPS of $2.87 on revenue of $7.275 billion for all of 2020. That exceeded Wall Street’s estimate for adjusted EPS of $2.79 on revenue of $7.22 billion.
One final item worth mentioning is that the company has a bullet-proof balance sheet — holding more than $3.7 billion of net cash (total cash minus total debt).
While it didn’t move much on that earnings beat, Activision is up about 30% since I first showed it to you here on April 25.
Electronic Arts and Take-Two also reported strong earnings in the past week or so. EA is the industry leader in sports simulation games like Madden NFL and FIFA, while Take-Two’s big-game franchises include Grand Theft Auto, Red Dead Redemption and NBA 2K.
Any of the three would be a good “buy” — but really, their strong earnings support buying the entire industry.
Here’s how you can do that.
How to Get Them All
The video gaming sector was booming, even before the Covid-19 pandemic boosted worldwide gaming activity.
According to Newzoo’s “Global Games Market Report,” 2.5 billion gamers across the globe spent about $150 billion on games in 2019.
But shelter-in-place orders from China and Japan to Europe and the United States produced a surge in numerous online activities, especially video gaming.
Not surprisingly, every major video game company has reported rising demand throughout the crisis … along with rising earnings.
But the coronavirus pandemic did not merely create a short-term boost to video game engagement.
It expanded the total gaming market for the long term…
The ranks of gamers worldwide increased by tens of millions during the last few months. Now that the worst of the crisis has passed, most of these new converts will reduce their gaming time… but they won’t eliminate it.
That’s why you should take a look at the VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO), a fund that invests in companies involved in video game development and eSports. It also invests in companies that produce the software and hardware that make video gaming and eSports possible.
Nine of the top 10 holdings in this video-gaming ETF — including Activision, EA and Take-Two — are sitting on a net cash position. Together, they hold $36 billion in cash.
To be clear, balance-sheet strength, by itself, is not a reason to buy a stock. Nor is balance-sheet weakness automatically a reason to sell a stock. But cash is helpful in a crisis, both for survival and for capitalizing on opportunity.
While other companies may survive the coronavirus mess, right now survival is their focus … not growth.
By contrast, the cash-rich companies in ESPO can remain focused on growth. It is unlikely that we will wake up one morning to discover that Activision and its $3.7 billion of net cash are asking for a government bailout. Ditto, the other major holdings in this ETF.
These companies will be survivors, which means they are very likely to become “thrivers” once we get through the current crisis.
They’re on the right side of the Technochasm we talk a lot about here.
Editor’s Note: For two decades, CEOs and Wall Street billionaires paid Eric Fry millions for trade research and ideas. Over 20 years, the peak highs from his top recommendations averaged out to 93% a year. But Eric has left all of that behind — and invited a small group to follow his work. For that small group, in just 10 months, he uncovered total gains of 987% (including the losers!). Today, Eric is inviting a few more people join him. Go here to find out more.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.