The gaming industry had witnessed solid growth during the pandemic, but the industry suffered last year due to supply chain issues and high inflation leading to the softening of demand.
However, with technological advancements and innovations in hardware and software, the gaming industry is expected to grow significantly. Moreover, with the growing popularity and accessibility of gaming, the industry should witness solid growth in the long term.
The popularity of e-sports tournaments and the growing number of professional gamers are fueling the sales of video games. According to Statista, revenue in the video games segment is expected to reach a market volume of $482.90 billion by 2027, growing at a CAGR of 7.2%.
Amid this backdrop, it could be wise for investors to buy fundamentally strong gaming stock Playtika Holding Corp. (PLTK). On the other hand, investors could avoid Roblox Corporation (RBLX) due to its weak fundamentals.
Stock to Buy:
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya, Israel, PLTK develops mobile games worldwide. The company owns a portfolio of casual and casino-themed games and distributes them to the end customer through various web and mobile platforms.
In terms of forward non-GAAP P/E, PLTK’s 11.31x is 29.6% lower than the 16.08x industry average. Its 5.46x forward EV/EBITDA is 38.2% lower than the 8.82x industry average. Likewise, its 10.87x forward EV/EBIT is 28.6% lower than the 15.24x industry average.
On January 19, 2023, PLTK announced its submission of a revised proposal to acquire Rovio Entertainment Corporation for €9.05 per share in cash. PLTK’s CEO, Robert Antokol, believes that the combination of Rovio’s renowned IP and the scale of its user base, together with PLTK’s best-in-class monetization and game operations capabilities, would create tremendous value for the company’s shareholders.
PLTK’s revenues for the third quarter that ended September 30, 2022, increased 1.9% year-over-year to $647.80 million. Its average daily payer conversion came in at 3.4%, compared to 2.8% in the year-ago period. Its total assets increased 6.8% to $2.99 billion, compared to $2.80 billion for the fiscal year that ended December 31, 2021. Its net income came in at $68.20 million.
Analysts expect PLTK’s EPS for the quarter ending June 30, 2023, to increase 123.6% year-over-year to $0.20. Its revenue for the fiscal year 2022 is expected to increase 1.1% year-over-year to $2.61 billion. Over the past month, the stock has gained 12.6% to close the last trading session at $10.22.
PLTK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Entertainment - Toys & Video Games industry, it is ranked #6 out of 21 stocks. It has an A grade for Value and a B for Quality.
We have also given PLTK grades for Growth, Momentum, Stability, and Sentiment. Get all PLTK ratings here.
Stock to Avoid:
Roblox Corporation (RBLX)
RBLX develops and operates an online entertainment platform serving customers worldwide. The company offers Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud.
In terms of forward EV/Sales, RBLX’s 7.69x is 273% higher than the 2.06x industry average. Its 8.23x forward Price/Sales is 506.3% higher than the 1.36x industry average. Likewise, its 79.44x forward EV/EBITDA is 800.7% higher than the 8.82x industry average.
For the fiscal third quarter that ended September 30, 2022, RBLX’s loss from operations widened 287.4% year-over-year to $300.01 million. The company’s net loss attributable to common stockholders widened 302.4% year-over-year to $297.80 million.
Its adjusted EBITDA declined 62.5% year-over-year to $50.88 million. Moreover, its net loss per share attributable to common stockholders widened 284.6% year-over-year to $0.50.
Analysts expect RBLX’s EPS for the quarter that ended December 31, 2022, to remain negative. It has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. The stock has fallen 20.8% over the past six months to close the last trading session at $38.99.
RBLX’s POWR Ratings reflect its bleak outlook. The company has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It is ranked last in the same industry. In addition, it has an F grade for Stability and Sentiment.
To see the other ratings of RBLX for Growth, Value, Sentiment, and Quality, click here.
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PLTK shares were trading at $10.41 per share on Tuesday afternoon, up $0.19 (+1.86%). Year-to-date, PLTK has gained 22.33%, versus a 7.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
1 Gaming Stock to Play in 2023 and 1 to Avoid StockNews.com
