10 Epic Video Game Stocks to Buy Now

Published on October 18, 2022 at 11:43 am by Tim Frederick in Hedge Funds, News

In this article we present the list of 10 Epic Video Game Stocks to Buy Now.

Electronic Arts Inc. (NASDAQ:EA), Roblox Corporation (NYSE:RBLX), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) are a few epic video game stocks that the smart money is buying up in droves.

The video game industry is booming, nearly doubling in value to a projected $236 billion from just $120 billion in 2017. While the industry’s growth rate is slowing somewhat, it’s nonetheless expected to expand by another $85 billion by 2026.

PC and console gaming get the bulk of the attention among the mainstream video game press and hardcore gamers, but it’s actually the social and casual gaming segment of the industry that has been largely responsible for its explosive past and projected growth. That segment of the industry alone is expected to be worth $243 billion by 2026, greater than the entire industry’s size as of this year.

Asian countries are among the biggest gaming hotbeds, with China leading the pack in terms of gaming revenue generated by country at $49.3 billion in 2021. Japan, South Korea, and India all rank within the top 6 biggest gaming markets, while the U.S., U.K, France, Germany, Mexico, and Russia round out the top 10.

Industry consolidation has driven some of the biggest gaming companies in the world off this list in recent years, as both Zynga and Activision Blizzard, which consistently ranked as top gaming stocks in the past, were acquired by Take-Two Interactive and Microsoft respectively. At least in terms of console and PC gaming, that consolidation and the cost of making so-called AAA games is making it all but impossible for new entrants to compete.

With game development costs rising on console and PC, those costs are being pushed onto consumers, with the average game price now pushing $70. That’s seen as bad news for that segment of the industry, as cash-strapped consumers struggle to keep up with the newest games. With the average cost of an AAA game now approaching $80 million, developers have little choice but to charge a premium for their products.

In contrast, the average mobile game costs as little as $100,000 to $150,000 and are typically free-to-play, giving smaller developers the chance to create a game relatively on par with anything else out there and attract a large audience if their game is a good one. In-game ads, subscriptions, and the sale of in-game items allow mobile developers to recoup their costs and then some.

Despite the industry’s promising future, video game stocks have taken a big hit this year alongside the broader market. The VanEck Video Gaming and eSports ETF is down 36% in 2022 as many video game stocks have been driven down to multi-year lows. Thus, it’s a great time to consider adding some video game stocks to your portfolio on the cheap.

With that in mind, we’ve turned to smart money managers to see which video game stocks they have the most faith in heading into the second half of 2022, and given the long-term nature of many of their portfolios, the long haul.

Barone Firenze / Shutterstock.com

Our Methodology

The following video game stocks are ranked based on hedge fund sentiment. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.

All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q2 2022 reporting period.

Epic Video Game Stocks to Buy Now

10. Playstudios Inc (NASDAQ:MYPS)

Number of Hedge Fund Shareholders: 8

Electronic Arts Inc. (NASDAQ:EA), Roblox Corporation (NYSE:RBLX), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) are some of the most well-known gaming companies in the world that smart money investors have added to their portfolios. A lesser known name with a smaller following among hedge funds is Playstudios Inc (NASDAQ:MYPS).

Playstudios Inc (NASDAQ:MYPS) publishes free-to-play games for mobile devices and on social media platforms. It primarily focuses on slot and casino games, including titles like MGM Slots Live – Vegas Casino and POP! Slots Live Vegas Casino. The bulk of the company’s revenue, which came in at $15 million in September 2022, comes from a handful of its casino games. Playstudios’ titles failed to gain much traction during the pandemic despite the mobile game audience growing by leaps and bounds, which is why the stock has fallen by 65% since June 2021.

Hedge funds were bailing on Playstudios Inc (NASDAQ:MYPS) during Q2, as there was a 56% drop in the number of money managers long the stock. David Einhorn’s Greenlight Capital was one of the most notable sellers, unloading its entire MYPS stake of 963,018 shares during the quarter.

9. GameStop Corp. (NYSE:GME)

Number of Hedge Fund Shareholders: 18

GameStop Corp. (NYSE:GME) operates more than 4,000 retail outlets that sell video game hardware, software, accessories, and merchandise, in addition to prepaid cards and other gadgets. The majority of the company’s stores are located in the United States.

GameStop has suffered mightily in recent years due to the gaming industry’s shift to digital sales. Leading titles like FIFA 22 and Grand Theft Auto V generated the majority of their sales through digital channels last year, as opposed to physical copies, which is not only impacting GameStop’s new game sales and foot traffic, but also cannibalizing the used game market, which is where the company has traditionally made the bulk of its money.

Furthermore, GameStop’s bet on NFTs appears to be going belly up, as revenue from its NFT venture GameStop Wallet, which launched in May, has slowed to a trickle. The broader gaming industry also appears to be turning its back on NFTs after initially showing enthusiasm over the technology’s potential.

GameStop Corp. (NYSE:GME) and hedge funds haven’t exactly been on speaking terms for the most part in recent quarters given the very public short squeeze by retail investors that bludgeoned several notable funds in early 2021. Hedge fund ownership of the stock has doubled since hitting an all-time low at the end of Q3 2021, but nonetheless remains less than half what it was in early 2016.

Bireme Capital marveled at the fact meme stock GameStop Corp. (NYSE:GME) was one of its few short positions not to have fallen in the first half of 2022, given its deteriorating fundamentals and hefty valuation, saying this about the company in its Q2 2022 investor letter:

“Amazingly, GameStop Corp. (NYSE:GME) is one of our only short positions to not fall in 2022. The stock trades at an $11.5b market cap, exceeding its pre-pandemic peak by billions of dollars. This is despite the fact that revenue is down 30% from the peak, gross margins are down 1500 bps, and the company has generated a negative free cash outflow of $700m in the last four quarters (we had to double check that number because it is so high).

Wall Street has consistently revised downward their estimates of Gamestop’s profitability, making its stock price stability in 2022 even more perplexing. Analysts currently estimate an EBITDA loss of around $400m, markedly worse than their estimates as of 2/3/22 of a loss of $60m. Their recently launched NFT marketplace will do nothing to fix their core business and comes about a year too late to be relevant in the NFT space. Instead, we see this as another example of a meme stock company hoping it can ape its way into a new business model, utilizing the popularity of the stock to drive new lines of business. We are not optimistic, and think the $11.5b market cap drastically overestimates the capability of Gamestop to pivot into something more profitable. We find it unlikely that Gamestop books a GAAP profit ever again.”

8. Playtika Holding Corp. (NASDAQ:PLTK)

Number of Hedge Fund Shareholders: 23

Playtika Holding Corp. (NASDAQ:PLTK) is an Israel-based company that publishes a wide range of free-to-play mobile games, including casino and bingo games like Bingo Blitz, hidden object games like Pearl’s Peril and multiplayer combat games like Just Fall.

Playtika Holding Corp. (NASDAQ:PLTK) shares are down by 46% this year, with the biggest drop occurring in early May when the company’s Q1 results and full-year outlook came up short of expectations. While net income per share more than doubled year-over-year, it still fell short of estimates, while revenue grew by just 5.9% to $676.9 million and also missed estimates. A few of the company’s games had strong quarters, including June’s Journey and Solitaire Grand Harvest, which grew revenue by 30.4% and 41.7% respectively.

Hedge fund ownership of Playtika Holding Corp. (NASDAQ:PLTK) has been steady since the company’s $1.88 billion IPO in the first quarter of 2021. The same can’t be said for the company’s stock, which has gone pretty much straight downhill, losing 70% since its public debut. Richard Mashaal’s Rima Senvest Management owned 6.56 million PLTK shares on June 30.

7. SciPlay Corporation (NASDAQ:SCPL)

Number of Hedge Fund Shareholders: 25

SciPlay Corporation (NASDAQ:SCPL) is a mobile and social games developer that has attracted a small stable of loyal smart money shareholders. The company’s games primarily revolve around casino and other casual games like slots, bingo, solitaire, and backgammon, some of which can be played against other players around the world.

SciPlay Corporation (NASDAQ:SCPL) performed well during the pandemic, but there are concerns that the company’s core social casino market has matured, with its CAGR standing at just 2.7%. SciPlay has been outperforming the broader social casino market, but how much more market share it can attain is a lingering question. The company pulled in $160.1 million in revenue in Q2, along with earnings of $0.23 per share, down a cent from a year earlier.

Other than a brief blip in the second quarter of 2021, ownership of SciPlay Corporation (NASDAQ:SCPL) among the hedge funds tracked by Insider Monkey has remained steady for nearly two years. Of that select group of funds, Arnaud Ajdler’s Engine Capital has held the largest stake in SCPL for the past three quarters.

6. Sony Group Corporation (NYSE:SONY)

Number of Hedge Fund Shareholders: 26

Closing out the first half of the list is gaming giant Sony Group Corporation (NYSE:SONY). While the Japanese company’s gaming division it its biggest, pulling in $24.4 billion in revenue last year, Sony also has numerous other segments, including music, financial services, imaging solutions, and electronic products.

Chip shortages have impacted the sales of Sony’s PlayStation 5 console, which is looking to replicate the success of the PS4, which sold over 117 million units worldwide to easily win the eighth generation console wars over Nintendo’s Wii U and Microsoft’s Xbox One (which it more than doubled in sales). It has a considerable amount of work to do in the current generation, as Nintendo’s Switch, which had a three year headstart, has already sold over 100 million units.

Between 26 and 29 hedge funds have been long Sony Group Corporation (NYSE:SONY) for 10 of the past 12 quarters, with just a brief decline in the middle of 2021. Panayotis Takis Sparaggis’ Alkeon Capital Management unloaded nearly all of its 5.7 million Sony shares during Q2, holding just 55,000 at the end of the quarter. The fund’s former position was the largest held by any of the funds tracked by our database as of March 31.

As noted, chip shortages have dogged Sony’s PS5 sales and contributed to the company landing on Aristotle Capital Management’s biggest detractors list for Q1. The fund nonetheless remains bullish on Sony Group Corporation (NYSE:SONY), as detailed in its Q1 2022 investor letter:

“Sony, maker of the PlayStation videogame console, was a leading detractor for the quarter. After a strong year in 2021, a shortfall in PlayStation 5 sales due to continued semiconductor shortages has dampened new console unit sales. Although there are likely to be continued limitations on the supply of components in the short term, consumer demand remains strong, and upcoming releases of major titles such as Horizon Forbidden West and Gran Turismo 7 are likely to further enhance demand. While Sony continues to manage supply-chain headwinds, the company has also again demonstrated its ability to build on the fundamental strength of its business across various segments. During the quarter, Sony acquired Bungie, a U.S.-based videogame developer known for the Destiny franchise and live game services; completed its initial equity investment in Japan Advanced Semiconductor Manufacturing, a foundry service subsidiary of Taiwan Semiconductor Manufacturing Company (TSMC); and acquired Brazilian music label Som Livre. Lastly, Sony announced a partnership with Honda Motor (NYSE:HMC) where the two companies expect to combine Honda’s expertise in manufacturing vehicles with Sony’s proficiency in imaging, sensing, telecommunication and network technologies to develop and commercialize electric vehicles. We feel these strategic actions demonstrate Sony’s ability to continue to improve on its market positions across its business segments with a long-term, forward-looking approach.”

In the second part of this article we’ll see where gaming titans Electronic Arts Inc. (NASDAQ:EA), Roblox Corporation (NYSE:RBLX), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) rank among world-class hedge funds.

5. NetEase, Inc. (NASDAQ:NTES)

Number of Hedge Fund Shareholders: 26

NetEase, Inc. (NASDAQ:NTES) is the publisher of more than 20 PC-based MMORPG’s, as well as a growing stable of mobile games. The company’s games are primarily developed for the Chinese market. In addition to its gaming division, NetEase also offers various e-commerce services, advertising, and various online platforms like a social music network and an online education platform.

While NetEase, Inc. (NASDAQ:NTES)’s core gaming business is doing alright, its future looks a lot less clear. Games must be approved by Chinese authorities before release, and those authorities have dramatically cut back on the pace with which they’re approving games in an effort to curb gaming addiction among minors. Major publishers appear to be getting singled out for exclusion, with several smaller publishers having games approved in recent months. NetEase was able to launch the already-approved Diablo Immortal in July, which could prove to be one of the company’s most successful mobile games going forward.

Hedge fund ownership of NetEase, Inc. (NASDAQ:NTES) sank to a four-year low in Q2, and has fallen by 41% over the past year, driven in large part by broader fears about investing in Chinese companies. Steve Cohen’s Point72 Asset Management and Ray Dalio’s Bridgewater Associates, two of the biggest names in the hedge fund industry, both unloaded their NTES stakes during Q2.

4. Roblox Corporation (NYSE:RBLX)

Number of Hedge Fund Shareholders: 38

Roblox Corporation (NYSE:RBLX) is the publisher of its eponymous hit mobile game Roblox, as well as toolsets and cloud solutions that support the game’s millions of content creators. Roblox remains one of the most popular mobile games in the United States, ranking 3^rd in downloads among free games on Google Play over the past month, and 4^th on iOS.

Roblox hit a record high of 59.9 million daily active users in August, but the company’s revenue growth is slowing considerably, down to 22% to 24% year-over-year gains in August. For comparison, revenue had nearly doubled year-over-year in August 2021. While it’s grown its daily users, those users are spending less time playing the game and less money on it due to pandemic tailwinds subsiding. Roblox is working on new monetization initiatives which it hopes will breathe life into its sales.

There’s been a 38% drop in the number of funds long Roblox Corporation (NYSE:RBLX) over the past two quarters, as fears about the company’s lagging ARPU drive away money managers. Noam Gottesman’s GLG Partners and Jeffrey Diehl’s Adams Street Partners were two of the funds that unloaded their RBLX stakes during Q2.

Tao Value discussed some of the pros and cons of Roblox Corporation (NYSE:RBLX)’s popular virtual world in its Q4 2021 investor letter:

“Roblox (RBLX) got significant more attention from both institutional & retail investors after Facebook announced to rename itself as Meta Platforms. I believe the price appreciation is largely attributed to the increased attention. On business side, Roblox rolled out a few successful music events and also partnered with Netflix on testing long-form media consumption in virtual world. Apple in its iOS 14.5 rolled out an impactful change for digital advertising landscape by requiring all apps to ask users to “opt in”.

3. Electronic Arts Inc. (NASDAQ:EA)

Number of Hedge Fund Shareholders: 47

Electronic Arts Inc. (NASDAQ:EA) is one of the most prolific, and at times controversial, game developers and publishers in the world. The company has a slew of popular gaming franchises, including its various EA Sports games, Need for Speed, Star Wars, The Sims, and BioWare-developed RPGs like Mass Effect and Dragon Age.

EA also has a growing stable of mobile games, which hit $1.2 billion in revenue for the 12 months ended June 30, up 49% year-over-year. The company’s EA Play subscription service had 13 million members at the end of 2020. EA grew net bookings by 21% year-over-year to $7.52 billion during its fiscal 2022 ended June 30. Net bookings are expected to hit about $8 billion for the company’s current fiscal year. EA also pays out dividends thanks to its growing free cash flow, which could hit $1.5 billion this year. EA shares currently yield 0.66%.

Slightly less than half the number of hedge funds are long Electronic Arts Inc. (NASDAQ:EA) as of June 30 as there were four years earlier. At that time, several funds owned EA stakes valued at over $500 million. The largest stake is now held by Jim Simons’ Renaissance Technologies, which is one of the few funds that has maintained its position in EA over the years, owning 1.5 million shares at the end of Q2 worth $183 million.

Mayar Capital is bullish on the heightened engagement Electronic Arts Inc. (NASDAQ:EA)’s games have been enjoying according to the fund’s Q2 2022 investor letter:

“Electronic Arts is also developing as we would expect. The business enjoyed strong engagement last year with players of EA games spending 20% more time than even during 2020, helped by the delayed sales of the PS5 console. A potentially important development is the ongoing negotiation between EA and FIFA regarding the licensing of the FIFA brand for the EA football game. Strongly worded public statements have been slung from both parties as part of the negotiation process, but this could certainly be an opportunity for EA.”

2. Sea Limited (NYSE:SE)

Number of Hedge Fund Shareholders: 68

Sea Limited (NYSE:SE) operates three primary services: an e-commerce platform, a financial services platform, and a gaming platform that helps funnel users into the company’s other offerings. Sea’s mobile games are headlined by the popular Garena Free Fire, which is one of the most downloaded and highest grossing games in the world.

Despite Free Fire’s ongoing popularity, the game is losing paid players at a rapid rate, with that figure crumbling by 39% during the second quarter. As a result, Sea Limited (NYSE:SE)’s digital entertainment revenue fell by 10% year-over-year to $900 million during Q2. In contrast, the company’s other two segments are still growing at a rapid rate. e-Commerce sales were up 52% year-over-year to $3.2 billion during the first half of 2022, while the company’s much smaller financial services segment grew GAAP revenue by 214% during Q2 to $279 million.

Hedge funds have been selling off Sea Limited (NYSE:SE) in droves over the past three quarters, with a 44% decline in ownership of the stock during that time. Crispin Odey’s Odey Asset Management and Scott Bessent’s Key Square Capital Management were among the many funds to unload their SE positions during Q2.

The Baron New Asia Fund also sold out of its Sea Limited (NYSE:SE) position this year, citing the company’s slowing revenue and user growth, as detailed in its Q1 2022 investor letter:

“Sea Limited, a global digital gaming and e-commerce company, detracted from performance for the period held. Similar to other online consumer businesses, Sea faced significant multiple compression in the quarter, exacerbated by a slowdown in user growth at its key Free Fire digital game and mounting investments in its e-commerce operation, particularly in new markets like Brazil. We exited our position as we lost confidence in the long- term unit economics in some of Sea’s new markets and were concerned by the simultaneous slowdown in revenue growth and increase in underlying cash burn.”

1. Take-Two Interactive Software, Inc. (NASDAQ:TTWO)

Number of Hedge Fund Shareholders: 69

Topping the list is Take-Two Interactive Software, Inc. (NASDAQ:TTWO), which has one of the most popular gaming franchises in the world under its belt in Grand Theft Auto. Some of the company’s other popular franchises include Red Dead, Mafia, BioShock, Mafia, Civilization, and Max Payne.

Take-Two is poised for a big 2023, with more than 20 major titles scheduled for release, in addition to 40 mobile games. It’s possible Grand Theft Auto VI could be among the titles released next year, which would provide another massive boost for the company, as GTA V has sold over 170 million copies worldwide, including 20 million in the past year, nearly a decade after its release. The company’s bottom-line is expected to recover next year as a result after taking a hit in 2022 after Take-Two bought Zynga for $12.7 billion.

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) hit an all-time high in hedge fund ownership during Q2, with funds bullish on the company’s acquisition of mobile developer Zynga. Ric Dillon’s Diamond Hill Capital and Gil Simon’s SoMa Equity Partners were among the funds to build large new stakes in TTWO during Q2.

Madison Funds is bullish on Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s stable of high-quality games and how the changing dynamics of the gaming industry favor the company going forward, as detailed in the fund’s Q2 2022 investor letter:

“Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is a leading publisher of video games. Take-Two has a reputation for the high quality of its games, having published industry favorites such as Grand Theft Auto and NBA2K.

The video game industry itself has shed much of its boom-and-bust patterns to become a steadier, more predictable business with high barriers to entry, established title franchises, and high levels of recurring, in-game revenue streams. The company has been investing heavily to step up the number of new title launches over the next few years, a favorable set-up which we believe is not fully reflected in its stock price.”

For more of the latest stock picks worth considering for your portfolio, check out the Biggest Computer Hardware Companies In the World and the 10 Best Stagflation Stocks To Buy.