Making the Grade
The Gaming Industry’s Record March Is Only the Beginning
The COVID-19 lockdown didn’t just trigger a rush to buy toilet paper.
When Americans aren’t sitting on the can, they’re parked on their butts somewhere else.
A historic amount of electronic equipment is flying off the shelves.
Many of the top-rated microphones and 4K video capture cards are sold out.
But the stay-at-home economy is creating booms that I believe will last long after the pandemic is over. New consumer spending patterns are locking in place. And this is where investors can earn some shiny rewards.
For example, in March, sales of video game hardware, software and accessories topped $10 billion.
This was the best month ever for the industry!
And it’s igniting a Mario Kart-like dash in video game shares.
Year to date, the Wedbush ETFMG Video Game Tech ETF (NYSE: GAMR) is crushing the broader markets…
But this is only the first level that companies – and investors – will conquer.
And that’s a trend I don’t mind digging deeper into in this week’s Making the Grade.
Five Stocks to Watch
Webcams, headsets and video capture devices have another use besides teleconferencing: online gaming (as well as streaming on Twitch, a livestreaming platform for gamers).
Last month, players viewed more than 1.1 billion hours of content on Twitch. That was a 20% increase from February and a record for the video game streaming service that launched in 2011.
Facebook (Nasdaq: FB) and YouTube also saw increases in video game streaming.
Meanwhile, Steam, the most popular online marketplace for games, posted record user counts in March. And sales of the PlayStation 4 and Xbox One rose 25% last month.
With that in mind, I want to highlight how some video game stocks are performing during the pandemic. And what opportunities will remain for investors after the crisis is over.
Now, it hasn’t been all green for video game and esports companies in 2020… though I believe that’ll soon change…
Shares of Huya (NYSE: HUYA), one of the leading video game and livestreaming platforms in China, are down 8% in 2020.
Like Twitch, Huya allows viewers to interact with gamers during livestreams. And its library covers a wide range of genres for console, PC and mobile games.
Though, more importantly, it has secured exclusive broadcasting rights with Riot Games for the esports League of Legends champions until 2022.
It also hosts its own tournaments, which are drawing record viewers.
Huya’s revenue is projected to jump nearly 35% in 2020.
Despite a bevy of big-name titles, Take-Two Interactive (Nasdaq: TTWO) shares have gained only a little more than 2.5% this year.
But the company owns Grand Theft Auto, the bestselling console video game franchise of all time. As well as Borderlands, Civilization and Red Dead Redemption. Grand Theft Auto V and Borderlands 3 were among the top 10 bestselling games in March.
Take-Two also owns NBA 2K, one of the bestselling sports franchises of all time. NBA 2K20 was one of the top five bestselling games last month.
In 2018, the company joined forces with the NBA for the esports NBA 2K League. This will continue to grow in the coming years.
Electronic Arts (Nasdaq: EA), the studio behind successful sports titles like Madden NFL and FIFA, has seen shares hit new 52-week highs in 2020. And for good reason.
The company also produces powerhouse series like Battlefield, Need for Speed, Star Wars, Titanfall, The Sims and many others.
Not to mention its free-to-play battle royale, Apex Legends.
But the most powerful product EA has launched in recent years is its EA Access. This is a monthly digital subscription service. It’s allowed EA to transition its business almost completely away from brick-and-mortar stores. Digital purchases now account for 77% of all sales.
And just when you think Nintendo (OTC: NTDOY) is finally dead, it comes out with another hit. Since launching in 2017, Nintendo’s Switch has been one of the hottest pieces of video game hardware to own.
And in March – amid the lockdown – Switch sales more than doubled year over year. Stores worldwide actually ran out of the consoles. Of course, the launch of Animal Crossing: New Horizons played a significant role, as it was the bestselling game last month and is the second-bestselling game of the year so far.
Shares of Nintendo have gained more than 9% in 2020. And they’re attractive in the long term with the rumored launch of a new Switch model in 2021.
Finally, we can’t overlook the herculean performance of Sea Ltd. (NYSE: SE) in 2020. Shares are up nearly 40% year to date.
Sea focuses on the Southeast Asia region – Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
Combined, these countries represent a population of 585 million people. And the area is home to 315 million internet users and 237 million smartphone users.
Sea is the region’s leading internet company and largest digital entertainment platform.
Through its Garena platform, players can access mobile and PC games. Sea is also the largest esports operator in Southeast Asia, providing livestreaming as well.
In 2019, revenue jumped 178% to $2.9 billion. And in 2020, revenue is expected to approach $4 billion.
Recession-Proof in a Digital World
The video game industry is expected to top $160 billion in sales this year.
And we’re seeing that COVID-19 won’t hurt growth. Rather, it will help propel these companies to new highs. Gaming is proving to be a recession-proof industry. And with the rise of digital purchases of video games, it doesn’t matter whether stores are closed.
Companies like the five I outlined today are perfectly poised to profit in today’s quarantined world and beyond.
Here’s to high returns,
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