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4 Stocks to Play as Video Game Sales Continue to Surge

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The video game industry has emerged as a fast-growing sector in the past few years. With gamers spending millions on personal computers, cloud and non-console VR content, mobile and subscription-based games, the sector still has significant potential to expand. Since the coronavirus pandemic, video games have engaged millions stuck indoors due to social distancing and lockdowns.

Even as restrictions are being eased, the video games space seems to have strong demand. Per the NPD Group’s report, overall consumer spending on video gaming in America totaled $14 billion in the second quarter of 2021, a 2% rise from the same quarter last year. Spending on overall content (including PC, cloud and non-console VR and mobile) increased 2% to $12.57 billion, while subscription-based content saw a double-digit percentage rise from the second quarter of 2020. Gaming hardware recorded a whopping 12% from the same period last year. 

Mat Piscatella, games industry analyst at The NPD Group, commented that “despite changing pandemic conditions across the country, video games spending remained strong in the second quarter of 2021.” And games like Among Us, Call of Duty: Black Ops Cold War, Call of Duty: Warzone, Candy Crush Saga, Mass Effect: Legendary Edition, Pokémon Go, PUBG Mobile, Resident Evil: Village, andRoblox were at the top of the best-selling and most played games list. Piscatella claims that this quarter’s rise is significantly strong and “maintained the elevated levels reached a year ago.” And why not? Last year as the pandemic locked people indoors, “video games increased a remarkable 47% compared to the same period in 2019”.

The video games space is showing signs of continued growth with a surge of new players every day, especially in the mobile games sector. In fact, in the aforementioned report, data from Sensor Tower shows that consumer spending on mobile games during the second quarter increased 5% from the same quarter last year. Gamers had spent generously on Action genre mobile games in the United States in the first quarter of 2021, drawing in 104% higher revenues than the same quarter last year.

With new titles, levels, arenas or environments constantly increasing engagement among existing players and attracting multiplayer gamers on mobile, spending will remain elevated. Niantic recently held its Pokémon GO Fest 2021 and earned $21 million over the course of the Jul 17-18 weekend. It also featured a 50-foot prop in the shape of an Egg as players ventured out to play the game on foot with easing restrictions.

Gaming bigwigs like Electronic Arts Inc. (EA - Free Report) , Take-Two Interactive Software and Zynga are also putting in money into mobile gaming, snatching up studios and creating new mobile titles to keep gamers engaged on mobiles as restrictions ease and people venture out, ditching PCs and big screens.

Mergers and acquisitions are constantly boosting the space. On Jul 19, China gaming giant Tencent agreed to acquire British video game developer Sumo Group for $1.26 billion. The merger will give Tencent access to Sumo’s portfolio that includes Sackboy: A Big Adventure and more racing games based on Sonic, the Hedgehog franchise.

4 Stocks to Play

After strong revenues in the second quarter, the video games spaces will surely continue to extend gains in the second half of the year and beyond. According to Research and Markets, the global gaming market that reached a value of $167.9 billion in 2020 will reach $287.1 billion by 2026, at a CAGR of 9.24%. Innovations in both hardware and software are expected to have a positive impact on the gaming industry and free-to-play business models will help in drawing in more players who will turn into subscribers or content buyers.

Given the positives, we have shortlisted five stocks that are poised to return well on investment.

JAKKS Pacific, Inc.’s (JAKK - Free Report) video game hits are Mortal Kombat andSpongeBob SquarePants: Snowball Showdown. The company will report second-quarter 2021 earnings on Jul 28, after market close.

The company has an expected earnings growth rate for the current year of 90.7% compared with the Zacks Toys - Games - Hobbies industry’s projected earnings growth of 5.5%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 80% upward over the past 60 days. JAKKS Pacific currently flaunts a Zacks Rank #1 (Strong Buy) and its shares have jumped more than 100% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

International Game Technology PLC (IGT - Free Report) is an iGaming systems and digital platforms provider and is set to benefit from its range of poker, bingo, and online casino table and slot games with rapid legalization of online gambling.

This Zacks Rank #1 company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Gaming industry’s projected earnings growth of 29.2%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised more than 100% upward over the past 90 days and its shares have risen 19.2% year to date.

On Jul 22, gaming giant Electronic Arts announced that its EA studio Motive is ready to release the remake of the horror classic, Dead Space on PlayStation 5, Xbox Series X|S and PC. The company has an expected earnings growth rate for the current year of 11.3% and it belongs to the Zacks Toys - Games - Hobbies industry. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.2% upward over the past 60 days. Electronic Arts sports a Zacks Rank #2 (Buy) and its shares have risen 1.2% so far this year.

Mattel, Inc. (MAT - Free Report) offers an array of video games that include Hot Wheels Stunt Track Driver and NFL Football. This Zacks Rank #2 company that belongs to the Zacks Toys - Games - Hobbies industry has an expected earnings growth rate for the current year of 68.5%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 1.1% upward over the past 60 days. The stock has gained 19.1% so far this year.