In this article we present the list of Top 10 Video Gaming Stocks to Buy Now.
The video game industry has been one of the big winners of the pandemic, achieving record sales during this year’s second and third quarters as housebound people around the world turned to gaming for stress relief and some much-needed human interaction (even getting trolled by a 12-year-old has its charms when you’re living like a hermit).
Video games sales rose by a record 30% year-over-year in Q2, hitting $11.6 billion according to NPD Group, which included a 57% surge in console sales. That performance all but obliterated historical trends, which suggested that this would be a down year for gaming given the looming release of new consoles by Sony Corporation (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) in Q4. Research and Markets now predicts sales to hit $58 billion this year, a 41% jump from 2019.
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Unsurprisingly, video game stocks have done well in 2020, with major industry players like Electronic Arts Inc. (NASDAQ:EA), Activision Blizzard Inc. (NASDAQ:ATVI), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) all posting double-digit gains this year. All three continue to trade at very reasonable forward multiples of between 20x-29x earnings and all three are expected to grow earnings by 13% or more over the next five years.
Nor is it just the biggest gaming publishers that are benefiting from pandemic tailwinds. The Global X Video Games & Esports ETF (NASDAQ:HERO), which tracks 41 global companies that generate the majority of their revenue from the gaming industry, has surged by over 71% this year. The ETF’s top holding, which also happens to top our list of the top video gaming stocks to buy now, has gained an eye-popping 350% this year.
To compile our list, we took the 41 companies from the HERO ETF and sorted them based on hedge fund ownership data from among the exclusive group of 800+ funds that Insider Monkey tracks as part of its market-beating investment strategy.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. That doesn’t mean there isn’t money to be made off their consensus stock picks. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
The HERO ETF only includes companies that generate about half their revenue from the gaming industry, so several prominent industry players were not considered for this list, namely console developers Sony Corporation (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT).
While gaming is now Sony’s biggest division, it still accounts for far less than 50% of the Japanese tech giant’s revenue, as Sony has multiple other large divisions like music, electronics, imaging, and even financial services. In the case of Microsoft, its Xbox division accounts for only a tiny fraction of the company’s revenue.
Now then, let’s check out the Top 10 Video Gaming Stocks to Buy Now, beginning with the first of several mobile game developers. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey.
10. Glu Mobile Inc. (NASDAQ:GLUU)
Hedge fund ownership of mobile games developer Glu Mobile Inc. (NASDAQ:GLUU) surged by 94% in Q2, a trend that was seen across several other gaming stocks. Q3 was a different story however, as 26% of hedge fund shareholders unloaded their GLUU positions.
Glu is a leading developer of free-to-play mobile games that contain in-game purchases, which has become the standard in the mobile industry. The company has a number of partnerships with companies like The Walt Disney Company (NYSE:DIS) that allow it to develop popular licensed games based on everything from celebrities like Gordon Ramsay, to the WWE. The late Q1 release of Disney Sorcerer’s Arena helped Glu blow past bookings estimates in Q2 and deliver a strong performance in Q3, during which bookings rose by 22% from a year earlier.
9. SciPlay Corporation (NASDAQ:SCPL)
SciPlay Corporation (NASDAQ:SCPL) was the social gaming division of casino software developer Scientific Games Corp (NASDAQ:SGMS) before being spun off into its own public company last May. The stock received relatively muted interest from hedge funds until the second quarter of this year, when there was a 53% jump in SCPL ownership owing to the aforementioned pandemic tailwinds. Those tailwinds contributed to a 14.6% Q2 revenue surge for social casinos.
At the time of its spinoff, billionaire hedge fund manager and SGMS shareholder David Einhorn of Greenlight Capital noted in his Q2 2019 investor letter that SCPL shares were trading at just 12x 2020 earnings estimates despite boasting earnings growth that was expected to surpass 20% annually through 2022. He pointed out that SciPlay also has a notable advantage over its competitors through its ongoing partnership with Scientific Games (which retains a large ownership stake in SCPL), reducing its R&D expenditures and boosting its margins. SCPL shares have rallied by 93% from their pandemic lows but still trade below their IPO price of $15.25.
8. Bilibili Inc. (NASDAQ:BILI)
Hedge fund ownership of Bilibili Inc. (NASDAQ:BILI) has risen for four consecutive quarters, increasing by 106% during that time. Those shareholders have been richly rewarded with gains of 200% in 2020 as the Chinese video streaming platform continues to rapidly expand, hitting 197 million monthly active users and 53 million daily active users in Q3, which represented 54% and 42% year-over-year increases respectively. Bilibili grew its game revenue by 37% year-over-year in Q3.
Bilibili made a big splash last December when it landed the exclusive Chinese broadcasting rights to the League of Legends World Championships. Bilibili also owns League of Legends and Overwatch esports teams in China. In addition to its large gaming presence, Bilibili is also a growing producer of Chinese anime, with plans to launch 40 titles across 2020-2021.
7. NetEase, Inc (NASDAQ:NTES)
NetEase, Inc (NASDAQ:NTES) was one of the rare gaming stocks that hedge funds were selling during Q2. Q3 was a different story, as there was an 18% jump in ownership to hit a 3-year high, with David Harding’s Winton Capital and Paul Tudor Jones’ Tudor Investment among the new buyers.
NetEase is in the midst of a strong 2020, as its revenue growth has accelerated over each of the first three quarters of this year, hitting $2.75 billion in Q3, a 27.5% jump from a year earlier. In addition to its stable of popular mobile and PC games, NetEase has an impressive pipeline of games in development based on world-class properties like Pokemon, Diablo, Harry Potter, and The Lord of the Rings, which should ensure continued future growth.
6. Zynga Inc (NASDAQ:ZNGA)
Finishing up the first-half of our list is Zynga Inc (NASDAQ:ZNGA), one of the top heavyweights in the early social gaming boom. Zynga fell on hard times after its early success and hedge funds fled the stock, with ownership bottoming out in early 2016. There’s been a steady increase in hedge fund ownership since early 2018 however as Zynga begins to find its footing again in the rapidly evolving gaming space.
In its Q2 investor letter, Brown Advisory, which owned $181 million worth of ZNGA shares on September 30, expressed confidence in Zynga’s organic pipeline of games and anticipates that the company will be able to achieve double-digit growth over the next five years alongside expanding margins. Zynga grew its MAU count by 23% year-over-year to 83 million in Q3.
- Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
Some of video gaming’s biggest names enter the fray on the back-half of our list of top video gaming stocks to buy now, beginning with Grand Theft Auto developer Take-Two Interactive Software, Inc. (NASDAQ:TTWO), which was owned by 52 hedge funds on September 30. TTWO continues to trail rivals EA and ATVI in hedge fund ownership after several funds unloaded positions in Q3.
Take-Two has an attractive stable of core game series that includes Grand Theft Auto, Red Dead Redemption, and NBA 2K that provide a strong buffer while it pushes deeper into mobile gaming and esports and builds out a larger stable of offerings through initiatives like its recent $994 million acquisition of Codemasters. NBA 2K bookings grew by 23% year-over-year in Q3 (TTWO’s fiscal Q2) after the release of 2K21 in September.
- Electronic Arts Inc. (NASDAQ:EA)
Electronic Arts Inc. (NASDAQ:EA) is the fourth-ranked video game stock, being owned by 62 hedge funds, down from a peak of 79 in 2018. EA’s cash flow continues to surge, topping $2 billion for the trailing 12-month period ended September 30, which prompted the company to recently initiate a dividend for the first time and to launch a share buyback program.
Wedgewood Partners discussed EA in its Q3 investor letter, noting that while the pandemic tailwinds in the form of boosted engagement for key titles like Madden and Apex Legends may not last, the game publisher has numerous other growth drivers on tap, including the new console cycle and its Project Atlas game development platform. EA was the fund’s 11th-largest 13F holding on September 30.
- NVIDIA Corporation (NASDAQ:NVDA)
GPU maker NVIDIA Corporation (NASDAQ:NVDA), which is on pace to shatter its sales and earnings records this year, lands in third spot. 82 hedge funds were long NVDA on September 30, down from 92 at the end of June. Rajiv Jain’s GQG Partners owned a $2.54 billion position in NVDA at the end of Q3.
After a lackluster 2019, Nvidia is again exhibiting impressive revenue growth, which reached 57% year-over-year in Q3 of the company’s fiscal 2021. Strong guidance for Q4 suggests more of the same to close out the year. Gaming accounted for 48% of sales during the September quarter, a figure which has been eaten into by the company’s growing data center platform, which received a big boost following the April closing of Nvidia’s $6.9 billion purchase of Mellanox.
- Activision Blizzard Inc. (NASDAQ:ATVI)
Activision Blizzard Inc. (NASDAQ:ATVI), which has frequently battled it out with EA over the years for top billing among hedge funds, tops its rival in Q3 but falls to an unexpected challenger for top spot. Shares of the World of Warcraft and Call of Duty publisher were owned by 93 hedge funds at the end of Q3, down from just over 100 at the end of Q1.
Despite being a veritable geriatric in a gaming world that moves at lightspeed, World of Warcraft remains immensely popular and a huge cash cow for Activision Blizzard. Preorders for the latest expansion, Shadowlands, hit an all-time high for the series, while last year’s release of World of Warcraft Classic lead to a massive surge in subscribers.
Activision Blizzard grew bookings by 46% year-over-year in Q3 and has big things on the horizon that should contribute to continued growth in the years to come, including Diablo 4 and Overwatch 2.
- Sea Ltd (NYSE:SE)
The top video gaming stock to buy now is Sea Ltd (NYSE:SE), which has been an 11-bagger since its IPO in 2017, including 350% gains this year. Hedge fund ownership of SE rose by 400% last year and has continued to climb ever higher in 2020, with 95 hedge funds being long SE on September 30.
Sea Ltd started off as a simple communication platform for gamers in the Southeast Asian market before the company successfully expanded into game publishing and eventually developing. It hasn’t stopped there however, building e-commerce and fintech platforms into its service to create what Tao Value called a “super app for ASEAN region” that has taken a leading market position in all three segments.
On an adjusted basis, Sea Ltd would have pulled in $1.66 billion in sales in Q3, doubling its sales for the entire 2018 year in a single quarter. Monthly active users hit 572.4 million at the end of Q3, a 78% year-over-year increase, while digital entertainment bookings are expected to rise by a similar amount in 2020 to reach $3.1 billion.
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