San Francisco-based Skillz Inc. (SKLZ) enables game developers to monetize their content through fun and fair multiplayer competition. Its revenue increased 70.2% year-over-year to $102.07 million in its third quarter (ended September 30, 2021), but its total costs and expenses increased 107.5% year-over-year to $183.72 million. Furthermore, its loss from operations came in at $81.64 million, versus $28.56 million in the year-ago period. Along with the company’s weak financials, its 0.67% trailing-12-month CAPEX/Sales ratio is lower than the 3.82% industry average. In addition, its trailing-12-month EBITDA and net income margins are currently negative.
The stock has lost 26.8% in price over the past six months to close Friday’s trading session at $11.33. And on October 23, 2021, Kaskela Law LLC announced that it would investigate SKLZ on behalf of the company's stockholders based on an amended securities fraud complaint. But despite the financial weakness, in terms of forward EV/S ratio, the stock’s 10.48x is 318.4% higher than the 2.50x industry average. In addition, its 11.87x forward P/S is 584.8% higher than the 1.73x industry average. So, we think it is wise to avoid the stock now.
However, the video-gaming industry is poised for solid growth thanks to the introduction of engaging content and continued innovations. According to a Mordor Intelligence report, the global gaming market is estimated to grow at a 9.6% CAGR through 2026. Therefore, we think investors looking to benefit from the industry’s growth should instead bet on quality video gaming stocks Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), and DoubleDown Interactive Co., Ltd. (DDI).
Click here to check out our Video Game Industry Report for 2021
Electronic Arts Inc. (EA)
A global leader in digital interactive entertainment, EA develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It has more than 450 million registered players around the world.
On September 29, EA and Fédération Internationale de Football Association (FIFA) announced a new EA SPORTS FIFA 22 esports program, which is expected to attract millions of players and viewers. Brent Koning, VP, EA SPORTS Competitive Gaming, said, “FIFA possesses the pivotal platform for football fans around the world to insert themselves into their own sports story. In partnership with FIFA, the mainstream appeal of esports is evident.”
EA’s net revenue increased 58.6% year-over-year to $1.83 billion for the fiscal second quarter ended September 30, 2021. Its gross profit increased 54% year-over-year to $1.33 billion. Also, its operating income came in at $340 million, up 128.2% year-over-year.
For its fiscal year 2022, EA’s revenue and EPS are expected to grow 24% and 16.9% respectively year-over-year to $7.67 billion and $6.72.In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 8.8% in price to close Friday’s trading session at $139.57.
EA’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
In addition, it has an A grade for Sentiment, and a B grade for Value and Quality. EA is ranked #3 of 23 stocks in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings for EA (Momentum, Growth, and Stability).
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK develops mobile games in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. The company owns a portfolio of casual and casino-themed games.
On October 11, 2021, PLTK’s game studio Wooga launched Switchcraft, a narrative-based match-3 game. Nai Chang, managing director at Wooga in Berlin, said, “In the last four years, we’ve changed our company vision to really focus on story-driven casual games. In my mind this is what sets us apart from all other games in the genre. Our focus on the story is clear when you first start playing. The amount of narrative world building and immersion is what Switchcraft brings for mobile games.”
For the third quarter, ended September 30, 2021, PLTK’s revenues increased 3.7% year-over-year to $635.90 million. The company’s total assets came in at $2.73 billion for the period ended September 30, 2021, compared to $1.78 billion for the period ended December 31, 2020. Its cash and cash equivalents were $894.10 million, compared to $520.10 million for the same period.
PLTK’s revenue is expected to be t $2.87 billion in its fiscal year 2022, representing a 10.7% year-over-year rise. In addition, the company’s EPS is expected to increase 195.8% year-over-year to $0.71 in the current year. It closed Friday’s trading session at $23.53 and is currently trading 12.7% higher than its 52-week low of $20.88, which it hit on August 3, 2021.
It is no surprise that PLTK has an overall B rating, which equates to Buy in our POWR Rating system. The stock has a B grade for Value and Quality.
PLTK is ranked #5 in the Entertainment - Toys & Video Games industry. Click here to see the additional POWR Ratings for PLTK (Stability, Momentum, Growth, and Sentiment).
DoubleDown Interactive Co., Ltd. (DDI)
Based in South Korea, DDI develops and publishes digital games on mobile and web-based platforms in South Korea. Its products include DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Ellen's Road to Riches games.
On September 14, 2021, DDI launched Undead World: Hero Survival, a zombie apocalypse RPG that uses a mixture of idle gameplay and character collecting and upgrading. In Keuk Kim, CEO of DoubleDown, said, “We’re excited to be expanding DoubleDown’s repertoire, developing mobile games in new genres.”
On August 25, 2021, DDI announced the commencement of an initial public offering of its shares in the form of American depositary shares in the United States. The estimated price range per ADS was $18 - $20.
Analysts expect DDI’s revenue and EPS to increase 6.8% and 12.7%, respectively, year-over-year to $395.73 million and $1.60, in its fiscal year 2022. It closed Friday’s trading session at $16.23 and is currently trading 5.4% higher than its 52-week low of $15.40, which it hit on September 8, 2021.
DDI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.
DDI has an A grade for Value and Sentiment, and a B grade for Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #1. Click here to see the additional POWR Ratings for Growth, Momentum, and Stability for DDI.
Click here to check out our Video Game Industry Report for 2021
EA shares were trading at $138.79 per share on Monday afternoon, down $0.78 (-0.56%). Year-to-date, EA has declined -3.00%, versus a 26.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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