Video games aren’t just for pale, sweaty nerds these days—they’re played by people from all walks of life, and they’re being played more than ever before.
Since the era of Pong and Atari, video games have risen from a tiny niche to one of the biggest sectors in the entertainment industry. Tech analytics company Digi-Capital estimates that global revenues from video game hardware and software could soar to $235 billion by 2022.
Naturally, these eye-popping figures also offer the opportunity for savvy investors to win big over the next several years. But what are the best gaming stocks to buy?
Are Gaming Stocks Worth Buying?
Video games stand to benefit from technological developments like few other industries, making them a highly appealing option in the digital age.
Advances like virtual reality and augmented reality and better graphics cards allow users to fully immerse themselves in the game. Other new trends such as facial recognition, voice recognition, and gesture control provide a more interesting and interactive gaming experience.
Massive Growth Potential
With smartphones in billions of people’s hands around the world, everyone is a potential gamer. The rise of esports and video game streamers on platforms such as YouTube and Twitch show that people enjoy not only playing games, but watching and talking about them as well.
Video game companies that produce a captivating product can expect to win a loyal fan base, reaping additional revenue in the form of downloadable content (DLC), merchandise, expansion packs, and sequels.
Like the film industry, the fate of a video game company often rises and falls on the success of its most recent releases—or even a single flagship product. Without the inside scoop on the development process, it’s sometimes difficult to ascertain how well a company’s next game will perform.
For example, Electronic Arts’ new video game Anthem hoped to capitalize on the popularity of recent multiplayer shooters such as Fortnite, Overwatch, and Apex Legends. However, since its release Anthem has mainly received middling and critical reviews, causing a significant setback for Electronic Arts [NASDAQ: EA].
The prospect of regulation constantly looms large over the video game industry. Chinese firm Tencent, the largest gaming company in the world, saw its shares plunge in August after China temporarily froze its approval process for new gaming licenses.
Even in the United States, there are recurring calls for regulation of violent imagery in video games, most recently by President Donald Trump.
There is also growing interest in regulating “microtransactions,” which are a business model that offers players advantages and better experiences in exchange for a small sum of money.
Is Activision Blizzard A Buy?
Activision Blizzard [NASDAQ: ATVI] hasn’t been having the greatest time lately. Although year-over-year revenues grew by 7% in 2018, the company’s stock also dropped by 26% in the same time period.
It’s little surprise, then, that the company laid off 800 employees in February, a full 8% of its workforce.
According to a report by Polygon, the Blizzard side of the business has no new major releases coming in 2019. The Activision side has also seen a slowdown, projecting fewer sales in 2019 than the previous year.
Despite the recent bad news, the restructuring at Activision Blizzard [NASDAQ: ATVI] may not be indicative of the company’s long-term outlook.
Most large enterprises in the video game industry go through similar events. However, would-be investors should certainly watch how engaged Activision Blizzard’s player base is with the company’s current and upcoming releases.
Should You Invest In Electronic Arts?
Electronic Arts [NASDAQ: EA] is another video game company that had a disappointing 2018, with shares cratering by 25%.
The recent flop of Anthem is another bad omen for the company, especially its BioWare division.
The good news for Electronic Arts [NASDAQ: EA], however, is that its recent Apex Legends title has been an unexpected smash hit, despite the lack of any announcement or marketing.
In the immediate future, Apex Legends should be able to pick up the slack where Anthem has failed. Reliable cash cows, such as the sports franchises FIFA and Madden NFL, should also keep the company on its feet.
NetEase: Buy or Sell?
For investors looking abroad, NetEase [NASDAQ: NTES] is an intriguing choice.
NetEase [NASDAQ: NTES] is a Chinese Internet technology company that operates versions of Blizzard Entertainment games such as World of Warcraft, StarCraft II, and Overwatch for the Chinese market.
The company also produces its own games, such as the Westward Journey series.
Like Tencent, NetEase was affected by China’s gaming license freeze in August, with shares diving by roughly 20%.
However, the company has missed several recent investor expectations, and needs to demonstrate solid results in the near future.
As a spot of good news, NetEase subsidiary Kaola is set to merge with Amazon’s Chinese import subsidiary in the near future.
The Best Gaming Stocks To Buy: The Bottom Line
Activision Blizzard [NASDAQ: ATVI] is currently going through a patch of instability, making it a risky investment prospect for conservative-minded investors.
EA stock has been rallying since the start of the year, and could be a good choice for a quick buck but there are long-term concerns about the company’s performance.
The prospects of NetEase stock are negatively affected by the recent license freeze and concerns about a general slowdown in the Chinese economy. Like its partner Activision Blizzard, NetEase remains a risky buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.