- Electronic Arts (EA): Has acquired three game studios for a combined $4.6 billion and is increasingly focused on the growing mobile gaming market.
- Nintendo (NTDOY): Its subscription-based Switch Online platform exceeded 32 million subscribers.
- Take-Two Interactive Software (TTWO): Acquired a mobile gaming company in a $12.7 billion deal, which should boost the company’s presence in the market.
Among fast-growth sectors, the global gaming industry gets considerable attention. Yet, video game stocks have recently fallen prey to the broad selloff in growth stocks. For instance, the Global X Video Games & Esports ETF (NASDAQ:HERO) is currently down almost 24% over the past year and 12% year-to-date (YTD).
Furthermore, recent research suggests that the global gaming market “was valued at USD 198.40 billion in 2021, and it is expected to reach a value of USD 339.95 billion by 2027, registering a CAGR of 8.94% over 2022-2027.” Therefore, we can expect video game shares to see positive returns in future quarters.
Meanwhile, three significant acquisition deals in the gaming space were announced in January. First, Take-Two Interactive (NASDAQ:TTWO) announced that it would acquire Zynga (NASDAQ:ZNGA) for $12.7 billion.
Then, a week later came Microsoft‘s (NASDAQ:MSFT) announcement that it was acquiring Activision Blizzard (NASDAQ:ATVI) for $68.7 billion. Finally, Sony (NYSE:SONY) revealed later that it would buy game developer Bungie for $3.6 billion.
So, with all of that in mind, let’s take a look at three video game stocks that could generate attractive returns in 2022 and beyond.
Video Game Stocks to Watch: Electronic Arts (EA)
Our first stock is the prominent video game company Electronic Arts (NASDAQ:EA). It has more than 540 million active accounts on its EA player network. Meanwhile, its portfolio includes popular titles such as FIFA, Madden, Battlefield, and Apex Legends.
The video game publisher issued third quarter of fiscal year 2022 results on Feb. 1. Revenue increased 7% year-over-year (YOY) to $1.79 billion. However, net income fell to $66 million, or 23 cents per diluted share, while prior-year net income was $211 million. Additionally, cash and equivalents ended the quarter at $2.67 billion.
Since the beginning of 2021, Electronic Arts acquired three game studios for a combined $4.6 billion. Its acquisition of Glu Mobile highlights its focus on the growing mobile gaming market. Furthermore, the company has new game releases in the pipeline, including three new Star Wars titles with Lucasfilm Games.
Overall, EA stock fell close to 13% over the past 12 months and almost 7% since the start of the year. Also, shares are trading at 17.1 times forward earnings and 5.7 times trailing sales. With that in mind, the 12-month median price forecast for Electronic Arts stands at $166 per share.
Our next video game stock comes from overseas. Nintendo (OTCMKTS:NTDOY) is an iconic Japanese gaming company with well-established franchises like Mario, Legend of Zelda and Animal Crossing. In 2021, Nintendo partnered with Comcast’s (NASDAQ:CMCSA) Universal Studios to open its first Super Nintendo World theme park in Japan. Additionally, the company has plans to open new parks in Singapore, California and Florida in the near future.
Management released FY22 nine months results on Feb. 3. Revenue declined 6% YOY to $11.4 billion through the first nine months of the fiscal year. Net income came in at $3.2 billion, down from $3.3 billion a year ago.
Over the last nine months, Nintendo’s total software sales have reached 179 million units, up 1.8% YOY. In addition, its subscription-based Switch Online platform exceeded 32 million subscribers or roughly 30% of all Switch devices.
Collectively, NTDOY stock is up almost 10% YTD. Shares are trading at 16.8 times forward earnings and 4.5 times trailing sales. Meanwhile, the 12-month median price forecast for Nintendo is $73.34 per share.
Video Game Stocks to Watch: Take-Two Interactive Software (TTWO)
Third on our list is Take-Two Interactive Software, one of the largest video game publishers worldwide. The company’s portfolio includes franchises such as Grand Theft Auto, NBA 2K and the Red Dead series.
The prominent video game publisher announced Q3 FY22 results on Feb. 7. Revenue increased 5% YOY to $903 million. Net income came in at $144.5 million, or $1.24 per diluted share, down from $182.2 million a year ago. Furthermore, cash and equivalents ended the period at $1.4 billion.
In January, Take-Two announced it would be acquiring mobile gaming company Zynga. In turn, investors are excited about the tailwinds it could bring to the mobile gaming space.
At present, the company has a pipeline of more than 60 releases planned until 2024. As a result, analysts expect a swift return to double-digit growth for FY2023.
Overall, TTWO stock declined 23% over the past year and 20% so far in 2022. Shares are trading at 23.5 times forward earnings and 5.3 times trailing sales. Finally, the 12-month median price forecast for Take-Two Interactive stands at $210 per share.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.