Markets

Microsoft Cashes in on Gaming Popularity: 4 Stocks to Buy

Microsoft Corporation MSFT announced on Sep 21 that it will buy ZeniMax Media, the company that owns well-known video game publisher Bethesda. This is by far one of the most notable video game acquisitions in Microsoft’s history. The acquisition comes at a time when video game sales are on an all-time in the United States, thanks to the coronavirus pandemic that has kept people confined to their homes.

After an impressive first quarter, video game sales have made an impressive start to the second quarter. Sales surged in both July and August. And with the United States once again witnessing a spike in new coronavirus cases, videogame sales are likely to further get a boost.

Microsoft Acquires ZeniMax Media

Microsoft said on Monday that it will be acquiring ZeniMax Media, owner of video game publisher Bethesda, for $7.5 billion in cash. This will be one of Microsoft’s biggest video game acquisitions in its history. The company bought Mojang, the studio behind Minecraft, for $2.5 billion in late 2014.

The acquisition will give Microsoft access to a raft of successful game franchises, including the role-playing game series Fallout and The Elder Scrolls and the Doom shooter franchise. “With the addition of Bethesda, Microsoft will grow from 15 to 23 creative studio teams and will be adding Bethesda’s iconic franchises to Xbox Game Pass,” Microsoft said.

Video Game Sales Continue to Rise

According to the latest figures from NDP, August saw $3.3 billion in spending across video game hardware, software, and accessories, up 37% year over year. Year-to-date spending is now at $29.4 billion, which is 23% higher than the same period last year.

On the hardware front, consumers spent $229 million, with Nintendo Co.’s (NTDOY) Switch being the most in-demand console. Switch also set a new record for August hardware dollar sales, overcoming the previous record set in 2008 by the Wii. Overall, Switch unit sales volume has more than doubled compared to a year ago. On the peripheral front, flight sticks became a hot commodity following the launch of Microsoft’s Flight Simulator 2020. 

Microsoft is also selling its new Xbox Series X and Xbox Series S consoles — which will go head-to-head with Sony Corporation’s (SNE) PlayStation 5 next month. Demand for gaming exploded as countries went into lockdown earlier this year, and companies in the sector have reported rising profits and revenues as a result.

The video game industry shattered sales records in the second quarter, with Americans spending a whopping $11.6 billion on games, marking the highest total second-quarter spending for gaming in U.S. history. According to Research and Markets, the global console games market is expected to grow from $40.6 billion in 2019 to about $57.9 billion in 2020.

Our Choices

Given the sudden surge in sales and upbeat sentiment in the video gaming industry, this makes an opportune time to invest in gaming stocks that are sure to gain in the near term.

Activision Blizzard, Inc. ATVI is a leading developer and publisher of console, online and mobile games. The company’s Call of Duty is one of the most popular gaming franchises globally. Its Overwatch League can be considered a pioneer of the e-sports concept.

The company’s expected earnings growth rate for the current year is 43.6%. The Zacks Consensus Estimate for current-year earnings has improved 16.6% over the past 60 days. Activision Blizzardcarries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Churchill Downs, Inc CHDN operates as a racing, online wagering and gaming entertainment company in the United States. It operates through three segments: Churchill Downs, Online Wagering and Gaming. The company owns and operates Derby City Gaming, a historical racing machine in Louisville, KY; online horse racing wagering platform, TwinSpires.com; and offers sports betting and iGaming through the BetAmerica platform.

The company’s expected earnings growth rate for next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days.  Churchill Downs has a Zacks Rank #1.

Capcom Co., Ltd. CCOEY plans, develops, manufactures, sells and distributes consumer video games. Its operating segment consists of Digital Contents, Arcade Operations, Amusement Equipments and Other Businesses segments.

The company’s expected earnings growth rate for the current year is 29%. The Zacks Consensus Estimate for current-year earnings has improved 12.7% over the past 60 days.  Capcom has a Zacks Rank #2.

DouYu International Holdings Limited DOYU provides a game-centric live streaming platform. The company operates its platform on both PC and mobile apps. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 7.8% over the past 60 days.  DouYU has a Zacks Rank #2.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>


Click to get this free report

Microsoft Corporation (MSFT): Free Stock Analysis Report

Activision Blizzard, Inc (ATVI): Free Stock Analysis Report

Churchill Downs, Incorporated (CHDN): Free Stock Analysis Report

Capcom Co., Ltd. (CCOEY): Free Stock Analysis Report

DouYu International Holdings Limited Sponsored ADR (DOYU): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More