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Continued Stay-at-Home Takes Gaming to Next Level: 5 Picks

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Even as several states in America are easing lockdowns, mass gatherings and outdoor sports are under restrictions for an indefinite period of time. In fact, in Denmark, the second phase of reopening has allowed the country's top football teams to resume playing. But fans are still not allowed in the stadiums.

COVID-19-led lockdowns have boosted user engagement with video games and esports as access to outdoor games has been cut off. This has helped the video game industry gain an edge over the other entertainment businesses. In fact, the global video game market is expected to reach a worth of $159 billion in 2020, nearly four times the box-office revenues and almost three times music industry revenues in 2019, which totaled $43 billion and $57 billion, respectively.

And why not? Game developers are constantly trying to cultivate the ongoing interest in games by introducing new patches, expansion packs even gamers pass the endgame scenarios.

Game Publishers Benefit From Free-to-Play

The real motive of game developers is to make gamers stay in-game and engaged as long as possible. Hence, developers try to incorporate better gaming mechanics to keep the games fresh for old and new players.

Along with that, gaming revenues that are entirely driven by consumer spending have evolved significantly in recent years. Consumers these days buy fewer games but spend more time on those. Hence, publishers have shifted the business model from single-unit to recurring revenue generated from a base of active users.

The recent trend of multi-player mobile gaming has also helped game publishers profit even when the coronavirus pandemic is wrecking havoc on other industries. Majority of these games are free-to-play and do not require costly gaming consoles or other devices. But these free-to-play games come within-game purchases, which eventually generate revenue for the publishers.

Fortnite, the most popular game globally, is completely free-to-play but it alone generates more than $1 billion in annual revenues. This shows that the in-game purchase model helps game publishers to generate sufficient income to meet operating payments and also allow growth while maintaining service levels.

Similarly, games like Pokémon Go which focus on outdoor game play have made changes on account of COVID-19. Earlier, Niantic organized Go Fest in summers in parts of the world and gamers had to purchase tickets to attend the convention. But with lockdowns and travel restrictions in place, the company has changed its Go Fest drill.

Niantic for the first time launched a virtual Pokémon GO Fest 2020 global event, slated to kick off on Jul 25. The company plans to sell tickets which will allow gamers to attend the event from anywhere in the world.

The coronavirus-led lockdowns have helped the gaming industry in the past few months. Additionally, game publishers’ efforts in incorporating changes to stay relevant in the stay-at-home environment have boosted the space. Given the positives, we have shortlisted three stocks that can make the most of the present scenario.

Activision Blizzard, Inc. ATVI, the makers of favorites like Call of DutyWorld of Warcraft and Overwatch, reported high engagement levels for most of its games. The company’s latest Call of Duty: Warzone garnered more than 60 million downloads after its Mar 10 release, just when the lockdown went into effect.

The company has an expected earnings growth rate of 21.8% for the current year against the Zacks Toys - Games - Hobbies industry’s projected decline of 5.4%. The Zacks Consensus Estimate for its current-year earnings has risen 10.5% over the past 60 days. Activision Blizzardsports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tencent Holdings Limited’s TCEHY famous online multiplayer battle royale game, PlayerUnknown's Battlegrounds (PUBG), has more than 200 million users. Year on year, online games revenues increased 31%, with PUBG mobile contributing to majority gains.

The company has an expected earnings growth rate of 11.1% for the current quarter against the Zacks Internet - Services industry’s estimated decline of 16%. The Zacks Consensus Estimate for its current-year earnings has moved up5% over the past 60 days. Tencent flaunts a Zacks Rank #1.

Nintendo Co., Ltd. NTDOY, known for its classic Nintendo Switch, also flaunts a mobile gaming portfolio with fan favorites like Animal Crossing. The giant sold almost half of its games digitally during the first quarter and recorded an increase in profits of41%.

The company has an expected earnings growth rate of 6% for the current year against the Zacks Toys - Games - Hobbies industry’s projected decline of 5.4%. The Zacks Consensus Estimate for its current-year earnings has risen 10.9% over the past 90 days. Nintendo carries a Zacks Rank #2 (Buy).

Gaming Peripheral Purchases Surge

Competitive gamers use high-end hardware, including keyboards and headphones. Given the current situation, some hardware companies are making the most of the heightened demand for gaming-based computer peripherals.

Middle East Games Con, a popular video game convention, will broadcast its live multi-camera feed to laptops, mobiles, tablets, connected TVs and other devices. The organizers prefer to go digital this year, on account of COVID-19 pandemic as gamers will not be able to travel to the convention center.

With more gaming conventions happening online this year, the gaming peripheral may see an uptrend. In fact, per a New Research study, the worldwide market for PC Gaming Peripheral is expected to see a CAGR of roughly 9.3% to reach $4,060 million in 2024 from the 2019 value of $2,380 million.

Given the bullish prospects, we recommend Turtle Beach Corporation HEAR, which develops, commercializes, and markets gaming headset solutions for video game and entertainment consoles, handheld consoles, personal computers, and mobile and tablet device.

The company has an expected earnings growth rate of 16.7% for the next quarter against the Zacks Communication - Components industry’s projected decline of 20.4%. The Zacks Consensus Estimate for its current-quarter earnings has climbed more than 100% over the past 60 days. Turtle Beach sports a Zacks Rank #1.

Streaming and Esports Boost Gaming

Esports and streaming play a massive role in the gaming industry. Video game fans and content creators use streaming websites regularly to post video game content and to connect with other gamers and content creators.

Per Streamlabs data, streaming and gaming platforms like Twitch, YouTube Gaming and Facebook Gaming have experienced a surge in growth, with around a 20% increase in usage hours. All the platforms saw quarter-over-quarter rise in viewership in first-quarter 2020, with Twitch surpassing 3-billion hours watched in a single quarter for the first time.

Here we recommend Super League Gaming, Inc. SLGG that offers an esports experience platform. It connects and celebrates players, regardless of their age, game or skill level. The company has an expected earnings growth rate of 15.9% for the current quarter against the Zacks Gaming industry’s projected decline of more than 100%.

The Zacks Consensus Estimate for its current-quarter earnings has moved 7.5% up over the past 60 days. Super League Gaming carries a Zacks Rank #2.

5 Stocks to Soar Past the Pandemic:In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.

See the 5 high-tech stocks now>>

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Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
Nintendo Co. (NTDOY) : Free Stock Analysis Report
Tencent Holding Ltd. (TCEHY) : Free Stock Analysis Report
Turtle Beach Corporation (HEAR) : Free Stock Analysis Report
Super League Gaming, Inc. (SLGG) : Free Stock Analysis Report
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