The gaming sector is will see a meteoric rise in valuation in the upcoming years. Even after a surge in gaming spending during the pandemic (and a consequent correction in 2022), the amount American consumers allocate to this continues to rise, reaching around $48 billion in fiscal year 2023. This is echoed globally, with the sector expected to expand at a CAGR of 10.17% over the next five years, estimated to reach $397.21 billion by 2029.
However, as disposable income in lower-middle-income countries rise, the sector can expect a rapid growth rate. Investors now find themselves in a unique position. They can invest early in future (and perhaps present) sector leaders! Invest in these three next-gen gaming stocks today!
Sony Group (SONY)
Sony Group (NYSE:SONY) is a renowned producer of a variety of high-quality electronic equipment. However, a key factor in its growth is its position in the console gaming market– Sony is the manufacturer of the PlayStation. Sony stock is trading at an analyst-reported average potential upside of 31.8%, indicating that it is a growth stock.
Taking a look at Sony’s financials yields a positive result. It has a profit margin of 7.45%, significantly above the sector average, which sits at 3.49%. As of Q1 2024, the company has seen a YOY revenue increase of 14.50%, with a significant earnings increase of 34.10%. Revenue has seen an overall increase post the release of the PS5, a next-gen gaming console. In fact, in 2023, the gaming segment brought in 32% of total revenue, making it significant.
Potential growth opportunities for SONY are in both the near and distant future. According to speculative news sites, leaks indicate that the PS5 Pro is scheduled to release later this year. This is to bridge the gap between the PS5 hardware aging and sales slowing. Additionally, executives hint at a potential PS6 release; however, that is more likely to be later, around 2027. A merger with Paramount will increase the company’s IP, adding exclusivity to in-game selections and design elements.
Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) is one of the world’s largest gaming conglomerates, and it owns the intellectual property of many of the world’s most iconic games. This includes EA Sports (including Madden and F1), Battlefield, and Apex Legends, among others. The company is valued at approximately $36.741 billion and has an estimated potential upside of 8.09%.
EA has solid financials and growth. It has a profit margin of 16.83%, with an operating margin of 20.41%. Revenue slid last quarter, with a considerable 5.10% year-on-year decrease. However, this was due to shortcomings in live services, and represents a slight bump in the road. Earnings have consistently beat estimates, by a margin of over 10% in the past two quarters.
A more fundamental approach to this company also yields positive results. Leaks have suggested that the giant will launch FC 25 on Sept. 27, 2024. This paid game will boost revenue, especially since it will be available on both old-gen and next-gen gaming devices. Additionally, EA is releasing College Football 2025 this year, with exciting announcements for the game slated to come this week. It is also rumored to be starting a new ad-based business venture and is currently running a hiring campaign. Investors should consider putting their money into this next-gen gaming company.
Take-Two Interactive Software (TTWO)
Take-Two Interactive Software (NASDAQ:TTWO) is a software development company that develops a wide variety of games. The company’s flagship titles include blockbuster games like Grand Theft Auto (GTA), Red Dead Redemption, and other collaborations with larger studios. Analysts are predicting a one-year price target of $175.69, representing a potential upside of 15.78%.
TTWO demonstrates significant improvement in its revenue-generating ability, with EBITDA growing 117.34% YOY. However, the company’s operational expenditures department leaves much to be desired. TTWO reports an operating and profit margin of -69.99% and -4.05%, marking considerable losses. However, it has multiple subsidiaries, including the companies with which it collaborates to develop games, which contribute to higher expenses.
There are several growth catalysts that may be a precursor to greater long-term growth. The most important one is GTA VI (Grand Theft Auto 6). The gaming community regards GTA VI as one of the biggest video game releases of the decade. Estimates suggest sales will surpass $2 billion in the first week of release. These massive inflows of revenue enables further growth for TTWO as a reinvestment opportunity. Now is the perfect time to buy the dip on this next-generation gaming company; it might just have the run-up of a century waiting for it.
On the date of publication, Matthew Rodrigues did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.