In this article, we discuss what’s wrong with the video game industry and the 5 stocks to watch in the sector. If you want to read our detailed analysis of these stocks, go directly to What’s Wrong With the Video Game Industry? 10 Stocks to Watch.
5. Roblox Corporation (NYSE:RBLX)
Number of Hedge Fund Holders: 50
Percentage Loss in Share Price in Past Six Months: 29%
Roblox Corporation (NYSE:RBLX) owns and runs an online entertainment platform. The stock has gained recognition in the past few months as a popular metaverse play. BTIG analyst Clark Lampen has a Buy rating on the shares with a price target of $133. In a recent investor note, the analyst highlighted the “impressive” user registration numbers of Roblox Corporation (NYSE:RBLX) in the post-COVID economy. In December, Roblox Corporation (NYSE:RBLX) had reported over 30% year-on-year user growth.
The strong user trends are one of many reasons why Roblox Corporation (NYSE:RBLX) is popular among hedge funds. At the end of the third quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Roblox Corporation (NYSE:RBLX), up from 49 in the preceding quarter worth $4.9 billion.
In its Q2 2021 investor letter, Guardian Fund, an asset management firm, highlighted a few stocks and Roblox Corporation (NYSE:RBLX) was one of them. Here is what the fund said:
“The wonder-tale stories of children’s books show us that there are infinite possibilities of stories and worlds. The metaverse, the idea that describes the shared 3D spaces in a virtual universe, is enabling people to create fiction. Over the past six months, we initiated a new investment in Roblox. The firm was founded in 1989 by David Baszucki and Erik Kassel when they programmed a physics lab where students could study how cars would crash.
Today, Roblox has become a leading platform with a mission to build a human co-experience that enables billions of users to play, learn, and build friendships in the metaverse. Recent advances in cloud computing, computing devices, and machine learning, enable the materialization of the metaverse. Take what we have in virtual reality today and fast-forward a few decades. Humans will be able to experience unimaginable things and in a couple of millennia virtual economies are likely to become bigger than the physical trade on planet Earth.
Over the first quarter of 2021, Roblox reported 140% revenue growth, 42.1 million daily active users, and 9.7 billion engaged hours. The opportunity for this platform is massive.”
4. Zynga Inc. (NASDAQ:ZNGA)
Number of Hedge Fund Holders: 52
Percentage Loss in Share Price in 2021: 34%
Zynga Inc. (NASDAQ:ZNGA) provides social game services. It has been one of the hardest-hit stocks in the gaming industry over the past few months. On January 19, BTIG analyst Clark Lampen downgraded Zynga Inc. (NASDAQ:ZNGA) stock to Neutral from Buy without a price target, noting that the possibility of a high takeover offer for the firm did not look likely in light of the recent purchase of Activision by tech giant Microsoft.
Zynga Inc. (NASDAQ:ZNGA) has witnessed a flurry of hedge fund activity recently. At the end of the third quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $603 million in Zynga Inc. (NASDAQ:ZNGA), up from 49 in the previous quarter worth $1 billion.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Zynga Inc. (NASDAQ:ZNGA) was one of them. Here is what the fund said:
“We also added to our position in Zynga. Our multiyear investment campaign in Zynga has been based on a new management team’s ability to drive steady growth in the company’s base portfolio of games, expand margins, reinvigorate the new game development pipeline and use its strong balance sheet to acquire complementary games and studios. Shares have been pressured in recent quarters, presumably because of investor concerns about the company’s moderating growth rate and Apple’s pending new privacy policy which will make it more difficult for Zynga to both efficiently acquire new players and sell advertising in its games. We believe the company has multiple growth levers it can pull in the periods ahead, including the rollout of new games, acquisitions, further penetration into international markets and entry into new gaming categories, to name a few. Furthermore, our research suggests the Apple privacy policy change is manageable for larger mobile game developers such as Zynga. Given our strong conviction in the profit cycle, we used recent weakness to add to our position.”
3. VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO)
Number of Hedge Fund Holders: N/A
Percentage Loss in Share Price in 2021: 5.7%
VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO) is an exchange traded fund that invests 80% of assets in securities of an underlying index that measures the return of firms that operate in the global video gaming and eSports sector. The fund can also invest in ADRs or foreign firms.
VanEck Vectors Video Gaming and eSports ETF (NASDAQ:ESPO) has more than $606 million in net assets.
2. Global X Video Games & Esports ETF (NASDAQ:HERO)
Number of Hedge Fund Holders: N/A
Percentage Loss in Share Price in 2021: 9.6%
Global X Video Games & Esports ETF (NASDAQ:HERO) is another gaming fund that has suffered recently. It is an exchange traded fund that invests 80% of assets in component securities of the Solactive Video Games & Esports Index. The index is designed to measure the performance of firms that stand to benefit from the increased video game consumption across the world.
Global X Video Games & Esports ETF (NASDAQ:HERO) has more than $635 million in net assets. It has a year-to-date daily total return of -6.7% and a net expense ratio of 0.50%. The 52-week price range of the ETF lies between $24 and $37.
1. Embracer Group AB (publ) (OTC:THQQF)
Number of Hedge Fund Holders: N/A
Percentage Loss in Share Price in 2021: 56%
Embracer Group AB (publ) (OTC:THQQF) is a Swedish firm that develops and publishes interactive home entertainment content. It owns more than 240 popular game franchises including Saints Row, Goat Simulator, Dead Island, Darksiders, Metro, MX vs ATV, and Kingdoms of Amalur, among others.
On December 10, Barclays analyst Nick Dempsey lowered the price target on Embracer Group AB (publ) (OTC:THQQF) stock to SEK 81.50 from SEK 85.50. The analyst maintained an Equal Weight rating on the shares.
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