Since the second half of last, video game stocks are on the rise. The VanEck Video Gaming & eSports ETF has experienced a 40% increase. Take-Two Interactive Software is one of the best performers in the gaming industry. Its Grand Theft Auto franchise and high market cap make it stand out. Activision Blizzard is a company that faces regulatory challenges, but also offers a great risk/reward scenario. Electronic Arts is lagging behind its peers with a greater risk and the potential of a merger or an acquisition to drive growth in the future.
1. Take-Two Interactive Software Inc. (known for its GTA series) is the smallest company, but has shown great potential through steady growth and solid earnings.
2. Activision Blizzard Inc., which was acquired by Microsoft in 2016, faces regulatory challenges. But it offers a compelling reward/risk setup and has achieved impressive financial results.
3. Electronic Arts Inc. has been relatively less volatile compared to its peers, but its recent earnings loss and dependence on M&A activity present higher risk and less investor confidence.
Take-Two Interactive Software Inc. Activision Blizzard Inc. and Electronic Arts Inc. all have a major role in the video games industry. VanEck Video Gaming & eSports NASDAQ: ESPO has tracked the market for video games stocks. It’s seen a resurgence over recent months. The ETF reached its all-time peak in February 2021 due to the increase in demand for videogames during the COVID-19 Pandemic. As the COVID-19 pandemic subsided, the ETF value dropped by 50%, before experiencing a 40% rise.
Take-Two Interactive, out of the three companies studied, is deemed to be the most successful and have the lowest existential risk. The company is most well-known for its massively popular Grand Theft Auto series. Take-Two stock, which has a market cap of $24 billion but has a significant growth rate, up 60% since Q4. The recent earnings report of the company exceeded revenue expectations. This highlighted its potential. The management indicated that the new GTA title will contribute significantly to $8 billion in bookings for fiscal 2025. J.P. Morgan gave Take-Two a neutral rating, citing the time until the release of GTA V as a reason not to invest.
Activision Blizzard is facing regulatory hurdles as it attempts to be purchased by Microsoft for $69million. Some regulators have approved this deal. However the Federal Trade Commission and U.K.’s Competition and Markets Authority have filed complaints in order to block it, citing the potential harm the merger could cause to competition. J.P. Morgan believes that the likelihood of the merger going through is no higher than 20%. The firm has given Activision an A rating, despite the fact that it sees this deal as a risk-reward opportunity. Activision has an impressive financial record, with its latest earnings report showing record revenue. This suggests that it will continue to provide value even if the deal falls through.
Electronic Arts has lagged behind the other two companies. In comparison to its peers, Electronic Arts’ stock has been relatively stable in recent years. It reached its all-time peak in 2018, but has since been on a gradual downtrend. The recent rally brought it back to 2018 levels. J.P. Morgan gave the company an “outperform” rating after it posted its first quarterly loss in many years. “underweight” rating. The team attributed this stance to a mixed market backdrop, observed tight levels, and an over-reliance on potential merger and acquisition (M&A) activity for future growth. As M&A deals in the video game industry are facing scrutiny, EA will only attract long-term investors once the risk has reduced.
Take-Two Interactive Software Inc. Activision Blizzard Inc. and Electronic Arts Inc. have been ranked as the three biggest players in video games. Take-Two is the leader with less existential risk. Activision, on the other hand, faces regulatory obstacles in its bid to be acquired. Electronic Arts is the laggard, with a higher risk and potentially greater rewards. Video game stocks have experienced a revival. Before making an investment decision, investors should carefully evaluate the risks and potential rewards associated with the company.