Back to top

Image: Bigstock

Coronavirus Lockdown Set to Spur Online Gaming Business

Read MoreHide Full Article

Quarantines in China are confining people to their homes. The stay-at-home era seems to be prolonged in the country as it fights to curb the spread of COVID-19. Notably, about 80,000 cases of infection and 3,000 deaths have been reported in the country.

The pandemic disease is also rapidly prompting lockdowns in other parts of the world. The novel coronavirus has managed to creep into countries like Italy, Israel, South Korea, Austria, Switzerland, Croatia and Iran, slowly threatening to become a global pandemic. King County in Washington recently declared a state of emergency after recording 14 confirmed cases of infection and five deaths in the county. Several cities in South Korea are also under lockdown.

Although the coronavirus outbreak has caused panic across global markets, not every business is likely to be negatively impacted. In fact, some sectors might actually benefit from the coronavirus scare as people shift from outdoor activities to online entertainment, such as videogames, live streaming, social networking and other internet-based services (Read more on 5 Internet-Based Stocks to Benefit From Coronavirus Lockdown).

COVID Scare Provides an Impetus to Gaming

The online gaming industry is likely to benefit more than others from this coronavirus-incited disruption. Notably, since January, most of China’s popular games have been witnessing increasing playtime and in-game purchases, as noted by Nomura analyst, Jialong Shi. Prompt releases of new gaming content by operators also attracted more gamers and resulted in more engagement among existing gamers.

However, there is a flip side to the coin. It is important to mention here that the lockdown in China is impacting many global gaming companies negatively. For example, most parts of online gaming equipment are manufactured in China. Due to the lockdown, the supply of manufactured parts is getting affected, which in turn is hurting sales of gaming equipment.

Nonetheless, online gaming is likely to get a boost, given the uncertainty regarding the duration for which people are going to be confined to their homes. As noted by BBC News, per The Paper, online searches on Chinese social media site Weibo for the word "boring" grew 626% on Jan 26 and key phrases such as "how to spend time at home when bored" also began trending on the website. This gives us an idea about how people are looking for ways to spend their time, and online gaming is one of the most attractive ways.

Stocks Likely to Benefit

Chinese gaming giant Tencent’s (TCEHY - Free Report) daily active users of Honor of King crossed 100 million around the Lunar New Year. Moreover, per mobile app researcher, Apptopia Inc., two of its most popular games — Mahjong and Game For Peace — saw a 109% and 44% surge, respectively, in daily active users in the last two months. The stock currently carries a Zacks Rank #2 (Buy).

Besides, active users of the game, Werewolves of Miller’s Hollow, by Netease (NTES - Free Report) have also more than doubled since December, with 131% growth in China in the same period. Importantly, most of the growth in late January followed the first outbreak of coronavirus, which confined people indoors. Netease, also with a Zacks Rank #2, has significant exposure to the online gaming business. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another stock, which is poised to benefit from the coronavirus quarantine, is Activision Blizzard (ATVI - Free Report) . Strong popularity of franchises like Call of Duty and Hearthstone is expected to boost in-game spending, thereby driving net bookings and the top line in the near term. Further, the King division is benefiting from strength in the Candy Crush franchise’s popular games like Candy Crush Saga and Candy Crush Friends Saga. Although the stock carries a Zacks Rank #3 (Hold) currently, it might be a good decision to keep a lookout for it.

Also, Zynga’s (ZNGA - Free Report) expanding mobile gaming portfolio is expected to drive near-term growth amid the coronavirus outbreak. Tremendous response for games such as Farmville 3 and Merger Magic! is a positive. On a year-to-date basis, the stock has gained 12.4% against the S&P 500 composite’s decline of 4.2%.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>