If you polled any corporation, I’m almost certain that every one of them would unanimously avoid having the novel coronavirus impact the international community. Sure, some business models have performed outstandingly due to their inherent contactless nature. And among the biggest beneficiaries are video gaming stocks. But the volatility and great uncertainty over what lies ahead suggests no one is really comfortable with Covid-19.
That said, none of us obviously had any say in these matters. As much as we hate to admit it, pandemics can happen anywhere at any time. Therefore, it reflects the frailty of the human condition. Still, we’ve got to move forward – another human trait. Here, some sectors have a much easier road ahead than others. As investors, you’ll want to consider gaming stocks as they offer compelling opportunities in the new normal.
For one thing, video games saw a dramatic global increase in purchases and overall engagement. In Italy, for example, a YouGov Italy survey revealed that 14% of participants significantly increased their time spent playing video games. Another 28% answered that they saw some increase in their playing time. While 43% reported no change, only a small minority reported a decrease or significant decrease in playing time (2% and 4%, respectively).
Second, gaming stocks represent one of the few entertainment investments that are largely insulated from the Covid-19 disaster. As the New York Times and other mainstream news agencies recently reported, Cineworld, the parent company of Regal Cinemas, the second-largest movie theater chain in the nation, “announced that it would temporarily close its 663 theaters in the United States and Britain this week.”
Unfortunately, it wasn’t a surprising revelation. Several highly anticipated films have been pushed back, resulting in less demand. As well, the lack of interest in going to the box office indicates greater-than-expected consumer fears. By virtue of its contactless entertainment platform, these video gaming stocks are poised to benefit:
- Sony (NYSE:SNE)
- Microsoft (NASDAQ:MSFT)
- Activision Blizzard (NASDAQ:ATVI)
- Electronic Arts (NASDAQ:EA)
- Nintendo (OTCMKTS:NTDOY)
- Amazon (NASDAQ:AMZN)
- Take-Two Interactive Software (NASDAQ:TTWO)
- Ubisoft (OTCMKTS:UBSFY)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
Understandably, there may be some guilt about betting on sectors due to the destruction of other industries. However, video games have been strong well before the pandemic. In addition, with limited upside options, investors have little choice but to go with what works. Right now, there are few names that can compete with these viable gaming stocks.
One of the iconic brands among gaming stocks, Sony has always championed console inclusivity, with each new release featuring consoles and controllers of color. In that vein, though, Sony surprised the video game community with its white PlayStation 5, proving that all preferences matter.
Joking aside, one of the intriguing factors supporting the case for SNE stock is the PS5’s multiple color customization options. Although I personally believe the standard white-on-black color scheme is gorgeous, so too is the option for black-on-orange, providing a striking aesthetic. Further, the price for this customization is very reasonable.
Of course, knowing Sony, the consumer technology firm has invested everything into its flagship product. I fully expect the PS5 to be groundbreaking, similar in magnitude for how the PS3 changed the rulebook for gaming stocks.
Further, consumer sentiment appears to be moving in the right direction. For instance, Target (NYSE:TGT) is running aggressive sales promotions despite the threat of significant competition. This indicates that the holiday season should be robust, just in time for the PS5 release. Obviously, this bodes well for SNE stock.
With so many viable business units, Microsoft offers a wealth of opportunities. But heading into the holiday season of what is otherwise a terrible year for all of us, the software and technology stalwart will release the Xbox Series X. This competes head-to-head with Sony, a specific match-up that historically hasn’t favored MSFT stock.
Nevertheless, as a strong alternative to the PlayStation, the Xbox has a massive following. Just like some American households are Ford (NYSE:F) people and others adamantly prefer General Motors’ (NYSE:GM) Chevrolet brand, the rivalry between Xbox and PlayStation users can be quite intense.
Don’t laugh. These nerd competitions can get unruly.
But according to a Rakuten analyst, the PS5 can end up selling 200 million units, which would make it the all-time most successful console. Frankly, I see nothing that suggests this is hyperbole and Microsoft probably can’t do anything about it. However, this doesn’t mean you should avoid MSFT stock.
Quite the contrary, for Microsoft, the Xbox is just one compelling product among several. Further, MSFT is a safe investment during times of trouble. So, whether you buy it as one of the gaming stocks or for its myriad digital services, you can’t go wrong.
Activision Blizzard (ATVI)
Back during the old normal, Activision Blizzard suffered significantly due to the onslaught of free-to-play (FTP) cross-platform games such as Fortnite. Also, without the gritty violence associated with Activision’s flagship Call of Duty franchise, Fortnite appealed to a broader audience. But these weren’t the only headwinds impacting ATVI stock.
Indeed, the video game developer shot itself in the foot by dumbing down its now iconic franchise. Fortunately, management went back to the basics, giving its consumers exactly what they wanted. In so doing, Activision released Call of Duty: Modern Warfare in October of last year, setting blistering records.
It’s a funny thing how this works. Feed what the customer is asking for and you’ll be a massive success.
Better yet, management is taking some select cues from its competitors, offering FTP games featuring elements and characters from the Call of Duty universe. Further, when the next console wars break out between Sony and Microsoft, one of the clear winners among gaming stocks should be ATVI stock.
Electronic Arts (EA)
When the coronavirus first knocked us on our behinds, a conspicuous impact was the loss of live events. Particularly, sports have always been a platform where Americans can come together during times of intense turmoil. As evidence, consider the powerful, lasting images of former President George W. Bush throwing the first pitch of game three of the World Series in 2001.
Say what you want about Bush’s politics. That was a healing moment for this nation.
Today, the situation looks much different. While the NFL has returned, viewership is down significantly, despite the promise of pent-up demand. According to several studies, the viewership decline is due to players kneeling during the national anthem as a form of protest against police brutality. And that seems a huge blow to Electronic Arts and EA stock.
As you know, EA Sports is a huge brand for both gamers and sports fans. However, I see the political divide (in this specific context) as a positive for EA stock. Most Americans want their football but without having an ideological message – no matter how important – be pushed down their throats.
Now, unless Electronic Arts intends to digitalize players kneeling during the anthem, this controversy should help EA Sports. Therefore, don’t ignore this in your list of potential gaming stocks to buy.
A childhood favorite for millennials, Nintendo has a special place among gaming stocks. It really mainstreamed the idea of in-home entertainment while driving the popular culture influence of Japan Inc. In addition, Nintendo paved the way for compatriot Sony and its wildly popular PlayStation.
But for NTDOY stock, the modern era has been a mix of hits and misses. However, Bloomberg reported on an interesting development, with Nintendo possibly shifting toward a perpetual platform business model, writing:
Some Nintendo bulls believe the company can transform into one that’s able to roll out incremental new platforms while retaining its user base. Hit products such as the Wii were often followed by much less successful ones, such as the disastrous Wii U. With each new console, the Kyoto-based gaming company rolled the dice on making the new machine a success, and while it got things right this generation with the Switch, a successor console would have no guarantee of similar sales.
“With every console generation, the install base resets to zero and their earnings power essentially resets to zero,” said Toan Tran of investment manager 10 West Advisors. He says Nintendo can break free by releasing a new and more powerful iteration of the Switch every few years. “They can continuously have an install base of say 100 million consoles out there, that just moves along over time.”
That could make things very interesting for NTDOY stock, which has sometimes acted as an afterthought to SNE and MSFT in the gaming stocks space.
With Amazon dominating almost every market worth dominating, it’s no surprise that the e-commerce behemoth also has strong implications for gaming stocks. For one thing, with the Covid-19 disruption, gamers can get whatever they want through Amazon.com. Considering the dramatic rise in e-commerce during this pandemic, this narrative for AMZN stock is not going away anytime soon.
By that, it will never go away. Amazon is a permanent fixture of whatever normal we enter after this crisis. My advice? Start getting used to it now.
But perhaps the more compelling play for AMZN as it relates to gaming stocks is its Twitch streaming platform. If you’re not a gamer, it’s hard to understand Twitch, which looks like a bunch of people paying money to watch other people play games. Honestly, some of you might find it disturbing. Whatever the case, this is becoming a huge phenomenon for AMZN stock.
Year-over-year in September, active streamers on Twitch increased by nearly 154%. At 7.46 million users last month, we’re talking relatively small numbers. Nevertheless, the coronavirus accelerated adoption, which should continue given the disruption in other entertainment platforms.
Take-Two Interactive Software (TTWO)
Another example of gaming stocks that sometimes gets lost in the shuffle, Take-Two Interactive Software arguably doesn’t generate as much attention as Activision Blizzard or Electronic Arts. Nevertheless, Take-Two is responsible for some of the hottest gaming franchises, including Grand Theft Auto and Red Dead Redemption. Plus, with the upcoming console wars, the next few years could be lucrative for TTWO stock.
How so? With the capacity upgrade that the new consoles offer, Take-Two software developers can really muster up compelling games. Interestingly, the company attracted some controversy when management announced that it will increase pricing for its next-generation games. But Take-Two CEO Strauss Zelnick defended the move, stating in part, “We deliver a much, much bigger game for $60 or $70 than we delivered for $60 10 years ago.”
While it’s never a good look to increase pricing, I think from a branding perspective, this makes sense. Take-Two may not win the volume game; however, it stands a great chance of winning through quality. And if the company delivers – and it should, given its strong history – TTWO stock will be one to watch.
Though not typically listed among the top gaming stocks on Wall Street, Ubisoft nevertheless carries significant weight with hardcore gamers. As the developer behind the Rainbow Six franchise, this aging series received a double shot of adrenaline with Rainbow Six Siege. A departure from the story-driven action from earlier titles, Siege focuses on multiplayer competitions.
Upon its release, it became one of the most popular first-person shooter (FPS) games on the market. Further, it’s still popular today, thanks to its distinct gameplay. Contrasting with other FPS games, players in Siege can interact with their environment, such as blowing up walls. Essentially, this creates a dynamic, “three-dimensional” environment where pretty much anything goes. By no insignificant measure, this game has brought much excitement toward UBSFY stock.
What isn’t so exciting, though, are revelations that Ubisoft imposed a toxic work environment for its female and non-binary employees. Ordinarily, that would be a no-no for UBSFY stock, especially with today’s emphasis on socially responsible investing.
Fortunately, Ubisoft CEO Yves Guillemot appears to have gotten the message, with his company terminating the offenders. What I especially liked was that these terminations were handed down irrespective of the violator’s skin color or ethnicity.
Good for Guillemot and Ubisoft’s native France! No man of any color or creed should feel emboldened to harass others. Here’s hoping that the CEO can continue changing the culture of Ubisoft for the better.
Alphabet (GOOG, GOOGL)
I don’t usually play video games because most of my time is spent writing articles for InvestorPlace. But when I do, my game of choice is Codemasters’ F1 series, which of course focuses on the Formula 1 auto racing championship.
For me, what makes this game interesting is that every track represents a new challenge. But because of my limited time, I need a quick-and-dirty way to setup my car. Fortunately, through Alphabet’s Google search engine, I can find the perfect setup to get up to speed quickly.
That’s one way that GOOGL stock represents a positive impact on the video game market. I’m sure millions of others use the same approach. However, Alphabet offers more direct exposure to gaming stocks through its Stadia subscription service.
It’s an interesting concept. Basically, access to Stadia is free. You can use the controllers you already have to play. And for a subscription of only $10 per month, you have access to a library of games. This will really benefit those gamers who don’t want to venture outside and are on a budget.
Still, it will be interesting to see if GOOGL stock will move higher from Stadia alone. I’m curious how it will handle the latest gaming technology through its streaming service. But as a holistic investment with growing gaming exposure, GOOGL is worth serious consideration.
On the date of publication, Josh Enomoto held a long position in SNE and F.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.