The gaming industry is projected to experience substantial growth in the near future, driven by the adoption of advanced technologies and the rising popularity of tech-based toys and mobile games. Given the industry’s tailwinds, investors could consider buying fundamentally sound gaming stocks, Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), and DoubleDown Interactive Co., Ltd. (DDI).
The entertainment market is flourishing, catering to diverse demographics. Green toys focus on sustainability, while building toys like construction sets and puzzles promote STEM and cognitive skills among Millennials and parents. Mobile gaming and tech-based toys, driven by digitalization and content production, are particularly popular with younger generations.
Moreover, the rise of mobile gaming in the online gaming market signifies a major shift driven by the widespread use of smartphones. This development has established mobile gaming as a key and rapidly growing segment, leveraging its convenience and accessibility. The online gaming market is anticipated to grow at a CAGR of 9.1% by 2030.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Entertainment - Toys & Video Games industry stocks, beginning with the third choice.
Stock #3: Electronic Arts Inc. (EA)
EA is a global gaming company known for popular franchises like Battlefield, The Sims, and FIFA. They develop, market, and distribute games across various platforms, utilizing digital and retail channels for sales.
EA’s trailing-12-month net income margin of 15.77% is 419.1% higher than the 3.04% industry average. Its trailing-12-month gross profit margin of 78.24% is 53.3% higher than the 51.05% industry average. Likewise, the company’s trailing-12-month EBIT margin of 20.18% is 127.1% higher than the 8.89% industry average.
For the first quarter, which ended June 30, 2024, EA’s total net revenue and gross profit were reported at $1.66 billion and $1.40 billion, respectively. The company generated operating income of $364 million. Moreover, its net income came in at $280 million and $1.04 per share.
For the third quarter ending December 31, 2024, EA’s revenue is expected to increase 6.7% year-over-year to $2.52 billion. Its EPS for the same quarter is expected to grow 22.6% year-over-year to $3.40.
EA’s stock has gained 5.4% over the month to close the last trading session at $145.73.
EA’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality and Sentiment. It is ranked #3 in the 17-stock Entertainment - Toys & Video Games industry.
Beyond what is stated above, we’ve also rated EA for Momentum, Growth, Stability, and Value. Get all EA ratings here.
Stock #2: Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituach, Israel, PLTK develops mobile games internationally. The company owns a portfolio of casual and social casino-themed games and distributes its games to the end customer through various web and mobile platforms and direct-to-consumer platforms.
PLTK’s trailing-12-month net income margin of 7.96% is 162% higher than the 3.04% industry average. Its trailing-12-month gross profit margin of 72.30% is 41.6% higher than the 51.05% industry average. Likewise, the company’s trailing-12-month EBIT margin of 20.22% is 127.6% higher than the 8.89% industry average.
For the fiscal second quarter that ended June 30, 2024, PLTK’s revenues were reported at $627 million. The company’s income from operations increased 1.1% year-over-year to $140.70 million. In addition, the company’s net income stood at $86.60 million and net income per share attributable to common shareholders at $0.23, up 14.4% and 9.5% year-over-year.
Street expects PLTK’s revenue for the fiscal third quarter (ending September 2024) to increase 1.3% year-over-year to $638.45 million. The company’s EPS is expected to rise 74.8% from the prior year’s quarter to $0.17.
Over the past three months, the stock has plunged 10.6% to close the last trading session at $7.
PLTK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
PLTK has an A grade for Value and a B for Stability and Quality. The stock is ranked #2 in the same industry.
Click here to access the additional PLTK ratings (Growth, Momentum, and Sentiment).
Stock #1: DoubleDown Interactive Co., Ltd. (DDI)
DDI engages in the development and publishing of and web-based casual games and mobile applications in South Korea. The company offers DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Undead World: Hero Survival games.
DDI’s trailing-12-month net income margin of 33.51% is significantly higher than the 3.04% industry average. Its trailing-12-month gross profit margin of 68.47% is 34.1% higher than the 51.05% industry average. Likewise, the company’s trailing-12-month EBIT margin of 38.78% is 336.4% higher than the 8.89% industry average.
In the fiscal 2024 first quarter, which ended on March 31, 2024, DDI’s revenue grew 13.5% year-over-year to $88.10 million, and its adjusted EBITDA grew 25.6% from the prior-year quarter to $31.90 million. Moreover, the company’s net income and EPS amounted to $30.36 million and $12.23, up 28.3% and 28.1% year-over-year, respectively.
The consensus revenue estimate of $83.44 million for the fiscal second quarter ended June 2024 reflects an 11% year-over-year improvement. Its EPS is expected to be $0.49 for the same quarter. Moreover, it has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of DDI have soared 25.8% over the past six months to close the last trading session at $11.11.
DDI’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
DDI has an A grade for Value, Sentiment, and Quality and a B in Growth. It is ranked first in the same industry.
In addition to the POWR Ratings highlighted above, one can access DDI’s ratings for Momentum and Sentiment here.
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EA shares were trading at $144.98 per share on Wednesday afternoon, down $0.75 (-0.51%). Year-to-date, EA has gained 6.27%, versus a 10.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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