Due to technological advancements, people can now connect and play games with others globally. This connectivity has fueled the expansion of the gaming market, which includes diverse platforms and business models. Given the industry’s tailwinds, investors could consider buying fundamentally sound gaming stocks, Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), and DoubleDown Interactive Co., Ltd. (DDI).
The rise of social gaming platforms, the growing penetration of smartphones and tablets, and interactive digital toys drive the global toys and games market. The return of classic games and toys in original and updated versions and ongoing technological advancements have also fueled the expansion.
IMARC Group expects the global toys and games market to reach $170.90 billion by 2032, exhibiting a CAGR of 4.5%.
Moreover, the rising preference for online gaming is fueling the demand for massively Free2Play (F2P), multiplayer online (MMO), and multiplayer games, a trend that is expected to persist in the foreseeable future. The global video game market is projected to hit around $664.96 billion by 2033, growing at a CAGR of 10.3%.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Entertainment - Toys & Video Games industry stocks, beginning with the third choice.
Stock #3: Electronic Arts Inc. (EA)
EA is a global gaming company known for popular franchises like Battlefield, The Sims, and FIFA. It develops, markets, and distributes games across various platforms, utilizing digital and retail channels for sales.
EA’s trailing-12-month net income margin of 16.83% is 510.1% higher than the 2.76% industry average. Its trailing-12-month gross profit margin of 77.61% is 56.4% higher than the 49.63% industry average. Likewise, the company’s trailing-12-month EBIT margin of 21.82% is 146.1% higher than the 8.87% industry average.
For the fourth quarter, which ended March 31, 2023, EA’s total net revenue and gross profit were reported at $1.78 billion and $1.42 billion, respectively. The company generated operating income of $234 million, up 33.7% from the prior year’s quarter.
Moreover, its net income came in at $182 million, compared to a loss of $12 million in the previous-year quarter. The company’s EPS came in at $0.68, compared to a loss per share of $0.04 in the previous-year quarter.
For the third quarter ending December 31, 2024, EA’s revenue is expected to increase 8.7% year-over-year to $2.57 billion. Its EPS for the same quarter is expected to grow 24.2% year-over-year to $3.45.
EA’s stock has gained 7.5% over the month to close the last trading session at $136.69.
EA’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Value. It is ranked #6 in the 18-stock Entertainment - Toys & Video Games industry.
Beyond what is stated above, we’ve also rated EA for Momentum, Growth, Stability, and Sentiment. Get all EA ratings here.
Stock #2: Playtika Holding Corp. (PLTK)
PLTK, headquartered in Herzliya Pituach, Israel, develops mobile games internationally. The company owns a portfolio of casual and social casino-themed games and distributes them to the end customer through various web, mobile, and direct-to-consumer platforms.
In terms of forward EV/EBITDA, PLTK is trading at 6.25x, 16.4% lower than the industry average of 7.48x. Its forward EV/EBIT multiple of 10.24 is 31.2% lower than the industry average of 14.87. Likewise, the stock’s forward EV/Sales of 1.82x is 2% lower than the industry average of 1.86x.
For the fiscal first quarter that ended March 31, 2024, PLTK’s revenues were reported at $651.20 million. The company’s income from operations came in at $98.10 million. In addition, the company’s net income stood at $53 million and net income per share at $0.14.
Street expects PLTK’s revenue for the fiscal third quarter (ending September 2024) to increase 1.4% year-over-year to $638.65 million. The company’s EPS is expected to rise 73.7% from the prior year’s quarter to $0.17.
Over the past three months, the stock has gained 19.7% to close the last trading session at $8.70.
PLTK’s strong fundamentals are reflected in its POWR Ratings. Its overall rating is B, which equates to a Buy in our proprietary rating system.
PLTK has an A grade for Value and a B for Stability and Quality. The stock is ranked #2 in the same industry.
Click here to access the additional PLTK ratings (Growth, Momentum, and Sentiment).
Stock #1: DoubleDown Interactive Co., Ltd. (DDI)
DDI develops and publishes web-based casual games and mobile applications in South Korea. The company offers DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Undead World: Hero Survival games.
In terms of forward Price/Book, DDI is trading at 0.04x, 98% lower than the industry average of 1.95x. Its forward EV/EBIT multiple of 3.16 is 78.6% lower than the industry average of 4.80. Likewise, the stock’s forward EV/Sales of 1.09x is 41% lower than the industry average of 1.85x.
In the fiscal 2024 first quarter, which ended on March 31, 2024, DDI’s revenue grew 13.5% year-over-year to $88.10 million, and its adjusted EBITDA grew 25.6% from the prior-year quarter to $31.90 million. Moreover, the company’s net income and EPS amounted to $30.36 million and $12.23, up 28.3% and 28.1% year-over-year, respectively.
The consensus revenue estimate of $83.44 million for the fiscal second quarter ending June 2024 reflects an 11% year-over-year improvement. Its EPS is expected to be $0.49 for the same quarter. Moreover, it has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of DDI have soared 54.9% over the past six months to close the last trading session at $12.86.
DDI’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
DDI has an A grade for Value, Sentiment, and Quality and a B in Growth. It is ranked first in the same industry.
In addition to the POWR Ratings highlighted above, one can access DDI’s ratings for Momentum and Sentiment here.
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EA shares were trading at $135.88 per share on Wednesday afternoon, down $0.81 (-0.59%). Year-to-date, EA has declined -0.40%, versus a 14.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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