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The Zacks Gaming industry is experiencing an upside thanks to increased visitation and spending per visit, especially from younger demographics. Favorable developments in Macau's gaming revenues are playing a significant role in driving the sector forward. Also, strong demand for sports betting is contributing to the industry's positive trends. Stocks like Corsair Gaming, Inc. (CRSR - Free Report) and Golden Entertainment, Inc. (GDEN - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurants, horse racing and entertainment amenities. Many companies are involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Visitation Improving: The industry benefits from improving visitation. In January, Macau’s gross gaming revenues (GGR) surged 67% year over year to MOP$19.337 billion (US$2.35 billion). In 2023, GGR rose 334% year over year to $183.1 billion. Robust investment will continue to aid the gaming industry in Macau. Casino operators are adopting a disciplined operational strategy by streamlining business processes, enhancing marketing approaches and renegotiating contracts with vendors and third parties. There is an intense emphasis on improving service quality and staffing levels to cater to gamers better.
U.S. Commercial Gaming Revenues Make Record: The gaming industry in the United States continues to perform better than expected. Per the American Gaming Association data, revenues from gambling hit a record high of $60.42 billion in 2022. In the first, the second and the third quarter of 2023, U.S. commercial gaming revenues reached $16.6 billion, $16.07 billion and $16.1 billion, respectively. This marks the industry’s 11th straight record-breaking quarter. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Bettors can place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #104, which places it in the top 42% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Apr 30, 2023, the industry’s northbound estimate for the current year has increased 6.6%.
Given their strong fundamentals, we will present a few gaming stocks that one can add to the investment portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Underperforms the S&P 500
The Zacks Gaming industry has outpaced the S&P 500 Index and the broader Zacks Consumer Discretionary sector in the past year.
The industry has gained 3.3% over this period compared with the S&P 500 Index’s increase of 19.5%. In the same time frame, the sector has gained 2.2%.
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 14.56. The space is trading at a discount compared with the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 19.68.
In the past five years, the industry has traded as high as 17.53X and as low as 7.12X, with a median of 10.64X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past 5 Years)
2 Gaming Stocks to Watch for
Corsair Gaming: Headquartered in Milpitas, California, the company, together with its subsidiaries, designs, markets, and distributes gaming and streaming peripherals, components and systems in the Americas, Europe, the Middle East and the Asia Pacific. The company is benefiting from an increased focus on creating innovative gaming and streaming gear such as gaming mice, keyboards, headsets and performance controllers.
Shares of this presently Zacks Rank #2 (Buy) company have declined 2.6% in the past three months. In the past 30 days, earnings estimates for 2024 have increased 2.6% to 80 cents. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: CRSR
Golden Entertainment: The company owns and operates a diversified entertainment platform, consisting of a portfolio of gaming and hospitality assets that focus on casino, branded taverns and distributed gaming operations. The company is benefiting from improved performance in its Nevada Casino Resorts segment, courtesy of increased occupancy and the company’s recent completion of room and pool renovations at The STRAT.
Shares of this presently Zacks Rank #2 player have increased 1.2% in the past three months. Moreover, In the past 30 days, earnings estimates for 2024 have increased 3% to $1.37.
Price & Consensus: GDEN
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2 Stocks to Buy From a Promising Gaming Industry
The Zacks Gaming industry is experiencing an upside thanks to increased visitation and spending per visit, especially from younger demographics. Favorable developments in Macau's gaming revenues are playing a significant role in driving the sector forward. Also, strong demand for sports betting is contributing to the industry's positive trends. Stocks like Corsair Gaming, Inc. (CRSR - Free Report) and Golden Entertainment, Inc. (GDEN - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurants, horse racing and entertainment amenities. Many companies are involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Visitation Improving: The industry benefits from improving visitation. In January, Macau’s gross gaming revenues (GGR) surged 67% year over year to MOP$19.337 billion (US$2.35 billion). In 2023, GGR rose 334% year over year to $183.1 billion. Robust investment will continue to aid the gaming industry in Macau. Casino operators are adopting a disciplined operational strategy by streamlining business processes, enhancing marketing approaches and renegotiating contracts with vendors and third parties. There is an intense emphasis on improving service quality and staffing levels to cater to gamers better.
U.S. Commercial Gaming Revenues Make Record: The gaming industry in the United States continues to perform better than expected. Per the American Gaming Association data, revenues from gambling hit a record high of $60.42 billion in 2022. In the first, the second and the third quarter of 2023, U.S. commercial gaming revenues reached $16.6 billion, $16.07 billion and $16.1 billion, respectively. This marks the industry’s 11th straight record-breaking quarter. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Bettors can place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #104, which places it in the top 42% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Apr 30, 2023, the industry’s northbound estimate for the current year has increased 6.6%.
Given their strong fundamentals, we will present a few gaming stocks that one can add to the investment portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Underperforms the S&P 500
The Zacks Gaming industry has outpaced the S&P 500 Index and the broader Zacks Consumer Discretionary sector in the past year.
The industry has gained 3.3% over this period compared with the S&P 500 Index’s increase of 19.5%. In the same time frame, the sector has gained 2.2%.
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 14.56. The space is trading at a discount compared with the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 19.68.
In the past five years, the industry has traded as high as 17.53X and as low as 7.12X, with a median of 10.64X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past 5 Years)
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2 Gaming Stocks to Watch for
Corsair Gaming: Headquartered in Milpitas, California, the company, together with its subsidiaries, designs, markets, and distributes gaming and streaming peripherals, components and systems in the Americas, Europe, the Middle East and the Asia Pacific. The company is benefiting from an increased focus on creating innovative gaming and streaming gear such as gaming mice, keyboards, headsets and performance controllers.
Shares of this presently Zacks Rank #2 (Buy) company have declined 2.6% in the past three months. In the past 30 days, earnings estimates for 2024 have increased 2.6% to 80 cents. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: CRSR
Golden Entertainment: The company owns and operates a diversified entertainment platform, consisting of a portfolio of gaming and hospitality assets that focus on casino, branded taverns and distributed gaming operations. The company is benefiting from improved performance in its Nevada Casino Resorts segment, courtesy of increased occupancy and the company’s recent completion of room and pool renovations at The STRAT.
Shares of this presently Zacks Rank #2 player have increased 1.2% in the past three months. Moreover, In the past 30 days, earnings estimates for 2024 have increased 3% to $1.37.
Price & Consensus: GDEN