In this article, we discuss the 12 best video game stocks to buy now. To skip the analysis of the video game industry, go directly to 5 Best Video Game Stocks to Buy Now.
The video gaming industry saw one of its biggest booms between 2019 and 2021 mainly because of the social distancing mandated by governments. The lockdowns forced people to find new social and entertainment platforms. In 2020, the US International Trade Administration reported that there were 2.7 billion gamers worldwide and 75% of the US households had at least one gamer. In 2019, the global video gaming market was worth $152.1 billion and was estimated to be around $195.65 billion by 2021. However, as per one of our previous reports in 2022, the total market size of the industry increased only slightly to $197 billion, and by 2025, it is estimated to reach $268 billion.
The video gaming market faced a few challenges in 2021 due to chip shortages mainly caused by the high demand for crypto mining when Bitcoin reached over $60,000. This shortage negatively affected several industries and increased the cost of chips. GPU vendors like NVIDIA Corporation (NASDAQ:NVDA) were in high demand. In relation to that, Paul Ducklin, a researcher at Sophos Security explained:
“Selling plenty of product may be a great outcome for GPU vendors, but the artificial price inflation caused by stock shortages is a less welcome look for any mainstream company [...] The company’s true customers – the end users who were after the product in the first place – end up feeling outmaneuvered by and aggrieved at the company itself, not the buyers who flipped for quick money.”
Recent trends suggest that video games are shifting more and more toward mobile games. Insider Intelligence reports that 24% of game developers believe that mobile games will surpass all other types of video games by 2025. Around 90% of all digital gamers play mobile games and only 10% are strictly committed to PC or console gaming.
Moreover, the trends are also showing that video game start-ups are experiencing the biggest gains. As an example, we previously reported that a California-based start-up, Gala Games, achieved over 750% growth in the last 5 years. However, for investors who want to look into well-established companies, Microsoft Corporation (NASDAQ:MSFT), Activision Blizzard, Inc. (NASDAQ:ATVI), and NVIDIA Corporation (NASDAQ:NVDA) are some of the best video game stocks.
For our list of best video game stocks, we chose the 12 video game companies listed on NYSE and NASDAQ based on their hedge fund sentiment as of the fourth quarter of 2022. The chosen companies are either entirely focused on gaming, have a separate gaming division in the company, or provide products that are focused on the gaming industry.
The hedge fund sentiment around each stock has been taken from Insider Monkey’s database of 943 elite hedge funds.
Best Video Game Stocks to Buy Now
12. Sony Group Corporation (NYSE:SONY)
Number of Hedge Fund Holders: 28
Sony Group Corporation (NYSE:SONY) is a Japanese multinational technology conglomerate. It is also one of the largest video game publishers in the world, as well as one of the largest video game console manufacturers. Last year, Sony Group Corporation (NYSE:SONY) acquired Savage Game Studios, which will operate under its PlayStation Studios Mobile Division.
Sony Group Corporation (NYSE:SONY) released its Q4 results on April 28, where it reported a GAAP EPS of ¥103.53 (1 Japanese Yen = 0.0073 USD) and revenue of ¥3.06 trillion, up 35.3% YoY. For FY 2024, the company provided revenue guidance of ¥11.5 trillion and ¥840 billion for net income.
In February 2022, Sony Group Corporation (NYSE:SONY) launched its PlayStation VR2 virtual reality headsets after six years of development. The PSVR2 headset gives the company a solid head-start in the up-and-coming metaverse. According to a Bloomberg report, the headset’s sales are expected to be lackluster. However, the estimated 270,000 unit sales in the first month still puts PSVR 2 ahead of most of the VR headsets previously launched.
“Sony Group Corporation (NYSE:SONY), the global provider of video games and consoles, image sensors, and music, as well as movies, was a major detractor for the period. The share price of the company has struggled this year following its strong performance in 2021. Signs of a slowdown in the gaming industry (as people seem inclined to take on outdoor activities as pandemic fears have subsided), combined with sales of its PlayStation 5 that have been held up by a global parts shortage, have led to gaming‐related software sales falling more than 20% year‐over‐year. Rather than focusing on short‐term demand dislocations, we focus on the company’s ability to continue migrating videogame users toward the firm’s subscription offerings, as well as its capacity to leverage content across its video, music and gaming platforms. We are also impressed with the expansion of Sony’s Music segment, which has been supported by the pervasiveness of streaming services. Management’s ongoing work to improve the company’s TV and film studios is bearing fruit as well, with sales growing 67% year‐over‐year for its Pictures segment as its regional strategy has taken hold, including recent progress made toward solidifying a merger plan with India‐based Zee Entertainment. All of this is to say we remain excited by the oligopolistic nature of the businesses Sony operates in, and the future prospects for the company given its leadership in image sensors, music publishing and gaming consoles.”
11. Roblox Corporation (NYSE:RBLX)
Number of Hedge Fund Holders: 29
Roblox Corporation (NYSE:RBLX) is a California-based gaming and multimedia company. It runs an online game creation system where the users can create games and play games created by other users. Since its inception, the platform is available on Windows, iOS, Android, and Xbox One.
Roblox Corporation (NYSE:RBLX) saw a huge rise in users during the pandemic but fell hard when the lockdown restrictions eased. Nevertheless, the company’s recent monthly key metrics show that it is making its way back. In March, Roblox Corporation (NYSE:RBLX)’s platform had 66.2 million daily active users, showing a 26% YoY rise. The users engaged for a total of 4.8 billion hours, representing an increase of 26% YoY. Finally, the estimated revenue was up 15% to 21% YoY while the estimated bookings were up 23% to 27% YoY.
In Q4 2022, ARK Investment Management was the most prominent hedge fund holder of Roblox Corporation (NYSE:RBLX), with over 8.46 million shares worth $240.908 million.
SaltLight Capital Management made the following comment about Roblox Corporation (NYSE:RBLX) in its Q4 2022 investor letter:
“We’ve used this incremental capital strategy with some of our ‘early-stage’ investments such as Roblox Corporation (NYSE:RBLX), Purple Group, Transaction Capital and Karooooo (Cartrack).
Today, we would like to discuss one of our early-stage investments, Roblox. While there is a risk that we may be premature, mistaken, or even wrong in our evaluation of this opportunity, we see Roblox as a company with the potential to ‘matter’.
Roblox is a 3D real-time content platform that bridges consumers and creators. Instead of being a conventional gaming product, Roblox acts as a tool provider that democratises the creation of 3D real-time user-generated content (UGC)…” (Click here to read the full text)
10. NetEase, Inc. (NASDAQ:NTES)
Number of Hedge Fund Holders: 31
NetEase, Inc. (NASDAQ:NTES) is a diversified internet technology company. The company’s portfolio revolves around mobile and PC games, cloud music, advertising, and e-commerce. Moreover, it is also involved in pork farming. NetEase, Inc. (NASDAQ:NTES) was founded in 1997 and is headquartered in Zhejiang, China.
NetEase, Inc. (NASDAQ:NTES)’s gaming portfolio includes renowned names such as Westward Journey, Rules of Survival, Sky, and Diablo Immortal. The company also had a partnership with Activision Blizzard, Inc. (NASDAQ:ATVI)’s subsidiary, Blizzard, to operate its games in China. In January 2023, the deal between the two companies ended after 14 years.
On February 28, JP Morgan upgraded NetEase, Inc. (NASDAQ:NTES) stock from Neutral to Overweight and raised its price target from $85 to $100 before the company’s March game launch cycle.
9. Electronic Arts Inc. (NASDAQ:EA)
Number of Hedge Fund Holders: 46
Electronic Arts Inc. (NASDAQ:EA) is a California-based video game developer. The company owns several gaming studios and operates a digital distribution platform, Origin. Electronic Arts Inc. (NASDAQ:EA) is famous for its Battlefield series, Need for Speed series, The Sims, and Star Wars, along with many others.
After parting ways with FIFA in 2022, Electronic Arts Inc. (NASDAQ:EA) announced its new soccer game early in April, EA Sports FC. The company announced that the new game will be created in partnership with 19,000 fully licensed players, 700 teams, and 30 leagues. Electronic Arts Inc. (NASDAQ:EA) will launch its rebranded soccer game in July this year.
Over the last three months, 22 analysts have covered the Electronic Arts Inc. (NASDAQ:EA) stock, and 14 of them maintain a Buy rating on the stock, compared to 8 having a Hold rating. The average price target of the 22 analysts is $134.41.
8. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 48
Sea Limited (NYSE:SE) was originally founded as Garena, a game development platform. The company rebranded itself in 2017 and kept Garena as a subsidiary of the company. Moreover, it is also one of the best diversified stocks as the company also operates banks, a digital payment platform, an online retail shop, and a soccer team.
On April 20, Benchmark assumed Sea Limited (NYSE:SE)’s coverage with a Buy rating and a $105 price target. The firm based its coverage on the positive future of the company’s digital payment platform, SeaMoney, and its online retail brand, Shopee.
Sea Limited (NYSE:SE) was held by 48 hedge funds in the fourth quarter of 2022, at a combined value of $1.677 billion.
“Top contributors to performance for the quarter included Southeast Asian e-commerce platform Sea Limited (NYSE:SE). Sea rose after achieving profitability in e-commerce a year ahead of guidance, and delivering significant growth in monetization and revenue despite moderating gross merchandise value (GMV) trends. Notably, our top four holdings entering the quarter (Sea, Meli, Nvidia, Airbnb) which represented 24.37% of capital on December 31, 2022, increased an average of 64.42% during the quarter.”
7. Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
Number of Hedge Fund Holders: 53
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is a New York-based video game holding company. Along with several other game publishing subsidiaries, the company owns Rockstar Games which developed Grand Theft Auto. As of August 2022,the entire GTA series has shipped over 380 million units.
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has around 6 games under its belt that are on the list of top-grossing video game franchises of all time. The GTA 5, GTA San Andreas, and GTA 4 take the 2nd, 30th, and 36th positions in the list, respectively. In February 2022, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) announced that GTA 6 is well under-way. However, the release date has not been revealed yet. According to different sources, it is likely to be released in the summer of 2024 and its success could be remarkable for the company.
Although the hedge fund sentiment for Take-Two Interactive Software, Inc. (NASDAQ:TTWO) dropped in Q4 2022 compared to the previous quarter, it can be seen that the most prominent hedge fund holders were loading up on the game developer’s stock. Point72 Asset Management increased its holdings in the company by 81% to 2.85 million shares worth $297.118 million in the quarter and was the most significant hedge fund holder. It was followed by Alyeska Investment Group which increased its total shares by 35% to 2.49 million, valued at $259.698 million. Citadel Investment Group was the fourth largest hedge fund holder of Take-Two Interactive Software, Inc. (NASDAQ:TTWO) and increased its total holdings by a whopping 189% to over 1.5 million shares worth $158.885 million.
“Video game developer Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has faced weakness in the mobile gaming market, in addition to game-launching delays. The company reported underwhelming quarterly results in Q4 and lowered its full-year guidance. After reexamining our long-term thesis, we decided to exit our position in favor of more attractive opportunities.”
6. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders: 60
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is an American mass media and entertainment corporation with several subsidiaries that develop video games. The company’s gaming division subsidiaries include Monolith Productions, Rocksteady Studios, and WB Games Montreal along with a few others. Some of the renowned games created by Warner Bros. Discovery, Inc. (NASDAQ:WBD) are Batman: Arkham Knight, Mortal Kombat, and Hitman series.
On April 10, Truist analyst Matthew Thornton initiated Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s coverage with a Buy rating and a $19 price target. The analyst believes that the company’s valuation provides a “low hurdle” and bears an upside potential for adjusted EBITDA estimates.
In Q4 2022, 60 hedge funds were bullish on Warner Bros. Discovery, Inc. (NASDAQ:WBD) with a combined value of nearly $1.35 billion.
Longleaf Partners made the following comment about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q1 2023 investor letter:
“Warner Bros. Discovery, Inc. (NASDAQ:WBD) – Media conglomerate Warner Bros Discovery (WBD) was the top contributor in the quarter. WBD was a top detractor last year in the face of concerns over management’s ability to effectively merge two businesses with different cultures, high leverage and exposure to cord cutting. In 2023, a solid plan is emerging for the integration of the businesses. This management team has a strong track record of integrating assets and growing free cash flow (FCF) per share, which is beginning to happen at WBD. Management has guided that the company will likely be below 4 times net debt to EBITDA by the end of 2023 and to 3x or less by the end of 2024, taking WBD out of the penalty box. We have seen this management team successfully execute this playbook before when Discovery bought former Southeastern holding Scripps in 2017. We are also finally beginning to see industry price rationality across the streaming world.”
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Disclosure. None. 12 Best Video Game Stocks to Buy Now is originally published on Insider Monkey.