The video game industry has been in a strange place since the release of Player Unknown’s Battlegrounds in March 2017. Whenever an industry-wide step change takes place, it’s almost always driven by a fear of missing out, or “FOMO.” With PUBG, the gaming industry found “battle royale,” its biggest genre hit since Minecraft. But amid all the battle royale madness, there are still appealing video game stocks to buy that don’t rely on new titles within the BR genre for impressive gains.
Investors just aren’t paying much attention to them. And understandably so.
The battle royale genre, which was popularized by Fortnite shortly after PUBG’s release, has sent developers tripping over themselves to make the definitive BR title, and it has caused investors to take cash out of any video game investment threatened by Fortnite’s dominance. Now, the copycats are here, and Electronic Arts (NASDAQ:EA) is up 22% so far in 2019, as it’s the publisher behind trendy new battle royale contender Apex Legends.
But, as is characteristic of any “FOMO” play, the mere-exposure effect tends to lead gamers, developers and investors to all drink from the same pool of water. That is, the more popular a thing is, and the more we are exposed to that thing, the more we gravitate toward it, unconsciously or not.
For investors, this is particularly disconcerting, as it means chasing areas of investment that have already peaked rather than making sound decisions for our long-term financial health. Think bitcoin. In response, I’ve put together this short, but vital, list of small- and mid-cap video game stocks that may have been overlooked. Each of these gaming stocks has a strong catalyst independent of the Fortnite/battle royale hysteria.
Sea Ltd (SE): Battle Royale Meets eBay
You may not have heard of it, but Sea Ltd (NYSE:SE), the parent company of Garena, is responsible for the original mobile battle royale game, Free Fire, released around the same time as PUBG.
As Garena’s first in-house title, Free Fire has proven itself a monster hit. In fact, as of SE stock’s most recent quarterly earnings statement, FF sports more than 350 million registered users, of whom 40 million are daily active users (DAUs). What’s more, Garena’s relationship with Tencent (OTCMKTS:TCEHY) has allowed SE stock to benefit from global video game sensations, including League of Legends.
But all of this is just one segment of Garena’s parent company, Sea Limited. In addition to digital entertainment, SE benefits greatly from e-commerce and digital financial services. In fact, its e-commerce business, Shopee, generated $3.4 billion in gross merchandise volume (GMV) and $127 million in sales for Q4, a year-over-year increase of 1,262%!
Considering the success SE has had in diversifying its business, it’s no wonder SE stock has nearly doubled this year. With momentum like this, it’s not unusual for bullish analysts to revise their price targets, which currently average out to $24.67.
Take-Two Interactive (TTWO): Playing By Its Own Rules
Source: Via Rockstar
In fact, TTWO’s entire publishing methodology goes against modern games development … rather than releasing big tentpole titles on an annual schedule, Take-Two spends years cultivating franchises. It’s the opposite of rival EA, which releases a new Call of Duty game every year without fail. And it’s this alternative approach that has made Take-Two one of the best video game stocks to buy for quite some time now.
TTWO’s formula works, as the newest Red Dead shipped more than 23 million copies to retailers, and Q3 revenue jumped to $1.25 billion from $481 million. Further, management increased its outlook for the full year, citing a “record year” for bookings and cash. Despite this, TTWO stock is down nearly 20% year-to-date as investors had more lofty expectations.
Considering it has one of the most sought-after gaming portfolios in the industry, and Take-Two stock is considered a buyout target from a Big Tech company like Microsoft (NASDAQ:MSFT) or Amazon (NASDAQ:AMZN), TTWO appears oversold. If it can get to the consensus price target of $124.06, that would represent a near-40% gain from its current perch. Not too shabby.
Glu Mobile (GLUU): Freemium for All
Unlike the other video game stocks on this list, Glu Mobile (NASDAQ:GLUU) focuses its efforts on the freemium model of mobile gaming. Its specialty is in celebrity endorsements (think Kim Kardashian, Brittany Spears, etc.). But its latest bout of high-profile branding comes from none other than Disney (NYSE:DIS).
Glu Mobile currently holds a license to develop games based on Disney and Pixar characters. And Darla Anderson, producer of the hit film Coco, has joined the board of Glu Mobile to help steer it in the right direction. Disney Sorcerer’s Arena will be the first title to come out of the licensing agreement, but far from the last.
Its recent strategical pivot, in fact, has led Glu Mobile back to profitability. In its most recent quarter, GLUU posted a loss of 1 cent vs. a loss of 29 cents a year ago. Revenue, too, increased by roughly $15 million in the quarter. Still, GLUU shares plummeted as forecast bookings of $88 million to $90 million fell short of expectations for $93.5 million. Consequently, GLUU stock is off 8% since Feb. 5.
With a robust mobile gaming market as its tailwind, GLUU stock can run much further if its partnership with Disney takes off. And this isn’t a bad spot to buy.
John Kilhefner is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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