The company has operated at a lower margin than its peers and has been very volatile over the years. The company is growth oriented and has continuously invested heavily in research & development and in acquisitions, and as a result has launched many new franchises and has received a phenomenal response from the market as per Metacritic data. In the future, I believe the company will see a rapid improvement in its margins as the company will generate high revenues growth due to its newly launched products.
The industry scenario
The global gaming industry is expected to grow at a CAGR of 6.7%, reaching $86.1 billion by the end of 2016. Out of the various platforms, the fastest growth is expected in tablets (57.6%) followed by smartphones (18.8%) and consoles (3.5%). Massively multiplayer online games, or MMOs, are expected to grow at an annual rate of around 10.4% through to 2016.
Among the peers selected, Take-Two Interactive Software, Inc. (NASDAQ:TTWO), although small in size, has already released some of the most popular games on the console and iOS platform in 2013. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) and Electronic Arts Inc. (NASDAQ:EA) compete in the sports and racing category and have a strong fan base for various titles; however, within these specific categories Electronic Arts Inc. (NASDAQ:EA) is dominant due to its long history and a strong fan base.
Activision Blizzard, Inc. (NASDAQ:ATVI), on the other hand, has historically dominated the MMO category with its World of Warcraft title. With a huge fan base, it is expected that this game title will continue to dominate the MMO segment for sometime in the future.
The upcoming titles of all the companies are targeted towards the specific market segments in which they have established presence. Electronic Arts Inc. (NASDAQ:EA) is looking to cash in on its sequels and is attempting to make some headway into the MMO category. Activision Blizzard, Inc. (NASDAQ:ATVI) is expected to release sequels and continue to strengthen its position in the MMO category. Meanwhile, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is preparing several launches to establish itself in the tablet and smartphone market while, in the MMO category, the company is currently focusing on the Asian market with the launch of various titles on the Tencent platform.
Conclusion
The high growth in the gaming industry means that the companies involved in the publishing of games have the potential to generate high returns in the future. Out of the three peers selected, I believe that all of them will show improved performance in the coming years.
However, in my opinion, two of the lot selected will show extraordinary returns in the future. Activision Blizzard, Inc. (NASDAQ:ATVI) is a prime investment option for value investors due to the expected growth in earnings for the company, coming in particular from the MMO category. While out of the remaining two companies I believe that Take-Two Interactive will be able to perform better than Electronic Arts Inc. (NASDAQ:EA), primarily due to the success that the company has achieved on the fast-growing tablet and smartphone platforms. Thus, I would recommend Activision Blizzard, Inc. (NASDAQ:ATVI) as a Buy for value investors and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) as a Buy for growth investors, while I have a neutral outlook for Electronic Arts.
Hussain Asghar has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive . The Motley Fool owns shares of Activision Blizzard. Hussain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Multiplayer and Mobile Games to Dominate the Industry originally appeared on Fool.com is written by Hussain Asghar.
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