Two Plays on Video Games

05/22/2020 5:00 am EST

Focus: CONSUMER

Eddy Elfenbein

Editor, Growth Stock Advisor

Online entertainment was growing at a fast clip even before the COVID-19 crisis forced everyone indoors but is now taking off with companies reporting blowout earnings and massive share price gains for 2020, observes Eddy Elfenbein, editor of Growth Stock Advisor.

Now might be the time to dip your toes in this space as growth is only accelerating. Here are two video gaming stocks to consider.

Activision Blizzard (ATVI) could be a poster child for that group of companies that are doing well in the current environment. Not only is the company benefiting from a more captive audience, but has also launched a very successful new edition of Call of Duty, one of its franchise properties.

The new Call of Duty: Warzone introduced a credible competitor to Fortnite, one of the most successful online games ever. And, as CEO Bobby Kotick noted on the ATVI earnings call, the new game brought in “over 60 million players since its launch.”

Kotick said the company “significantly exceeded our outlook for both revenue and earnings per share” in the quarter. Activision Blizzard revenue in the first quarter was $1.79 billion, which was $148 million above guidance the company had just issued in February.

The company delivered $0.65 in earnings per share and also upped its dividend to $0.41 annually, an 11% increase year-over-year.

Another beneficiary of the current popularity of video gaming has been Nintendo (NTDOY), the Japanese electronics firm. If the last time you picked up a game controller was to play Mario Bros. on a Nintendo 64, you’re missing out.

The company has designed a sleek new mobile gaming device, the Switch, that is the gaming platform for a new generation of young gamers.

Gaming companies today have ubiquitous marketing as they tie their games in with famous entertainers, movies, and social media. Nintendo is promoting its Pokémon brand with Detctive Pikachu, a recently released movie starring Ryan Reynolds.

While Nintendo reported some supply chain issues due to the coronavirus, it appears to be back on track assuming no worsening of the crisis in China, where many of its Switch components are produced. Nintendo did lower guidance for 2020 slightly, but the company has a history of under-promising and over-delivering.

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