Below we present the list of 5 Epic Video Game Stocks to Buy Now. For our methodology and a more comprehensive list please see 10 Epic Video Game Stocks to Buy Now.
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 3rd in downloads among free games on Google Play over the past month, and 4th 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.
Disclosure: None.
