Thanks to the continued remote lifestyle, the esports industry has been gaining popularity with substantial increases in its user base. In addition, the efforts of e-sports companies to expand audiences by hosting live gameplay have helped fuel the growth of the esports market.
The global esports market is expected to reach $1,860.2 million by 2026, registering a 15.1% CAGR from 2021. Furthermore, Insider Intelligence estimates that monthly esports viewers will be around 26.6 million in the United States this year. Given this backdrop, we think it could be wise to scoop up shares of famous players in this space Activision Blizzard, Inc. (ATVI) and Electronic Arts Inc. (EA), because they have robust growth potential.
However, with the rapid rollout of vaccines and easing restrictions, consumer spending is increasingly shifting toward outdoor recreation. So, we think fundamentally weak stocks in this space, Esports Entertainment Group, Inc. (GMBL) and Super League Gaming, Inc. (SLGG), might struggle to advance.
Click here to check out our Video Game Industry Report for 2021
Stocks to Buy:
Activision Blizzard, Inc. (ATVI)
ATVI in Santa Monica, Calif., is a video game developer and publisher that operates through three segments: Activision Publishing, Inc.; Blizzard Entertainment, Inc.; and King Digital Entertainment. The company’s legendary franchises include World of WarCraft, Call of Duty, Diablo, Hearthstone, Candy Crush, and Overwatch. It provides innovative, scalable, and valuable games in the world of competitive entertainment.
Last month, the company announced that its “Call of Duty: Vanguard” will launch a new warzone experience with seamless integration on November 5. While multiplayer will feature 20 maps on day one, Zombies fans will witness a signature undead gameplay experience, marking a franchise-first Zombies crossover for Call of Duty.
In July, Hearthstone, one of the ATVI’s franchises, launched the Alliance's glory in “United in Stormwind.” Alliance’s 135 all-new cards inspired by the rites of passage should allow the company to grow its fan base significantly worldwide.
ATVI’s product sales for the second quarter, ended June 30, 2021, increased 6.6% year-over-year to $568 million. The company’s total net revenues rose 18.8% from its year-ago value to $2.3 billion. Its operating income increased 28% from the prior-year quarter to $959 million. Also, its net income grew 51% year-over-year to $876 million.
Analysts expect ATVI’s revenue for its fiscal year 2022 to be $9.98 billion, representing 13.3% year-over-year growth. The company has an impressive surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. ATVI’s EPS is expected to increase 10.4% in the current year and 14.9% next year. Furthermore, the stock has gained 5.4% in price over the past year.
ATVI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value, Sentiment, and Quality. We’ve also graded ATVI for Growth, Momentum, and Stability. Click here to access all ATVI’s ratings. ATVI is ranked #6 of 23 stocks in the Entertainment – Toys & Video Games industry.
Electronic Arts Inc. (EA)
EA is a global leader in digital interactive entertainment. The company develops and delivers games, content, and online services for mobile devices, personal computers, and internet-connected consoles. EA games can also be run on PlayStation 5, Xbox Series X, and Nintendo Switch. In addition, the company provides advertising services and licenses its games to third parties. EA is headquartered in Redwood City, Calif.
This month, EA and PGA TOUR announced the addition of FedExCup Playoffs to EA SPORTS PGA TOUR, which is the first-ever golf video game to incorporate ShotLink data. This data will help in rating acute players and skills, which will be incorporated true-to-life in-game events. This partnership will enable the fans to witness an authentic and realistic experience while they play video games.
For its first fiscal quarter, ended June 30, 2021, EA’s net revenue increased 6.3% year-over-year to $1.55 billion. The company’s gross profit increased 5.6% from its year-ago value to $1.24 billion. Its operating income stood at $322 million, while its net income came in at $204 million.
EA’s revenue is expected to increase 22.3% year-over-year to $7.57 billion in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. EA’s EPS is estimated to increase 2,200% in the current quarter and 15.1% in the current year. Over the past year, the stock climbed 15.9% in price. Also, the stock advanced 13.3% over the past six months.
EA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Value, Sentiment, and Quality.
In addition to the POWR Rating grades we’ve just highlighted, one can see EA’s ratings for Growth, Stability, and Momentum here. EA is ranked #3 in the Entertainment – Toys & Video Games industry.
Stocks to Sell:
Esports Entertainment Group, Inc. (GMBL)
Based in Birkirkara, Malta, GMBL is a full stack esports and online gambling company powered by the growth of video gaming and the popularity of gaming among the young generation. The company offers esports entertainment, esports wagering, iGaming, traditional sports betting services, and professional and amateur esports events.
In July, GMBL acquired Gameday Group's B2C business, operating under the Bethard Group Limited, for a $ 19.5 million cash transaction and a 12% net gaming revenue share for two years. Although the additional gaming licenses could expand its market reach, the acquisition could negatively impact its cash balance in the near term.
GMBL’s total operating expenses increased 1,898.4% year-over-year to $11 million for its fiscal third quarter, ended March 31, 2021. The company’s operating loss increased 918.7% from its year-ago value to $5.61 million. Its net loss increased 97.3% from the prior-year quarter to $12.44 million. GMBL’s loss per share stood at $0.73 during this quarter.
GMBL’s EPS is estimated to remain negative in the current year. Furthermore, the stock has declined 33% in price over the past three months and 42.5% over the past six months.
GMBL’s POWR Ratings are consistent with this bleak outlook. GMBL has an overall F rating, which equates to a Strong Sell in our POWR Rating system. Also, the stock has an F grade for Stability and Quality, and a D for Growth.
Click here to see the additional POWR Ratings for GMBL (Momentum, Sentiment, and Value). The stock is ranked #30 of 31 stocks in the Entertainment – Casinos/Gambling industry.
Super League Gaming, Inc. (SLGG)
SLGG is a gaming community and content platform that delivers multiple ways for gamers to connect and engage while playing a game. SLGG provides gameplay and content offerings with more than a dozen features of the top video games titles. In addition, it offers esports tournaments to amateur players. Minehut; Framerate; SLG.TV; Virtualis Studios; and City clubs are the segments through which the Santa Monica, Calif., company works.
During the second quarter, ended June 30, 2021, SLGG’s revenue increased 234.6% year-over-year to $1.08 million. However, the company’s total operating expenses increased 44% from its year-ago value to $6.86 million. Its net operating loss increased 38.5% from the prior-year quarter to $6.31 million. Also, the company’s net loss came in at $2.31 million.
SLGG has failed to beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is estimated to remain negative in the current year and next year. The stock has declined 31.2% in price over the past three months and 16.9% over the past six months.
SLGG’s poor prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
The stock has an F grade for Quality, and a D for Value and Stability. We’ve also graded SLGG for Growth, Momentum, and Sentiment. Click here to access all SLGG’s ratings. SLGG is ranked #22 in the Entertainment – Toys & Video Games industry.
Click here to check out our Video Game Industry Report for 2021
ATVI shares were trading at $78.23 per share on Thursday afternoon, down $2.06 (-2.57%). Year-to-date, ATVI has declined -15.34%, versus a 21.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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