The entertainment industry is seeing steady gains as a result of rising consumer demand and technological improvements. Social video platforms, specialized streaming services, and cloud gaming have boosted access and opportunity for content providers. The combination of AI and virtual reality promotes immersive experiences.
Given the industry’s growth prospects, investors could consider buying fundamentally sound entertainment stocks Mattel, Inc. (MAT), Gravity Co., Ltd. (GRVY) and Electronic Arts Inc. (EA) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the entertainment industry.
According to Statista, total revenue in the entertainment market is anticipated to expand at a CAGR of 11.4% to reach $53.13 billion by 2027. This growth can be attributed to various factors such as the increasing popularity of streaming platforms, the rise of virtual reality technology, and the growing demand for live events and experiences.
The toys and games industry is valued $261.65 billion this year and is expected to grow at a CAGR of 9.9% over the next five years. The games market is expanding as a result of rising disposable income among millennials and Generation Z. Consumer interest in movies and cartoons boosts sales of action figures and accessories.
Also, the global AI in video games market is expected to reach $11.4 billion by 2032, increasing at a CAGR of 26.8%. Moreover, investors’ interest in gaming stocks is evident from the VanEck Vectors Video Gaming and eSports ETF’s (ESPO) 18.3% returns over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three Entertainment - Toys & Video Games stocks, starting with number 3.
Stock #3: Mattel, Inc. (MAT)
MAT is a children’s and family entertainment company, designs and produces toys and consumer products worldwide. The company operates through North America, International, and American Girl segments.
MAT’s trailing-12-month levered FCF margin of 8.85% is 72.3% higher than the industry average of 5.14%. Its trailing-12-month EBIT margin of 10.87% is 44.8% higher than the industry average of 7.50%.
For the third quarter that ended September 30, 2023, MAT’s net sales came in at $1.92 billion, up 9.3% year-over-year. The company’s adjusted EBITDA increased 22.5% from the previous-year quarter to $579.70 million. Its adjusted operating income and EPS stood at $506.10 million and $1.08, up 27.2% and 31.7% year-over-year, respectively.
Analysts expect MAT’s revenue to grow 2.6% year-over-year to $5.62 billion for the year ending December 2024. Its EPS is expected to grow 11.5% year-over-year to $1.41 for the same period. The stock has gained 11.3% over past nine months to close the last trading session at $18.59.
MAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MAT also has an A grade for Growth and a B for Sentiment and Quality. It is ranked #8 out of 18 stocks in the B-rated Entertainment - Toys & Video Games industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for MAT.
Stock #2: Gravity Co., Ltd. (GRVY)
Headquartered in Seoul, South Korea, GRVY develops and publishes online and mobile games in South Korea, Taiwan, Thailand and the U.S. The company provides massive multiplayer online role-playing games, including Ragnarok Online, Dragonica, Ragnarok Online II, and Ragnarok Prequel II.
GRVY’s trailing-12-month ROCE of 38.55% is significantly higher than the industry average of 3.41%. Its trailing-12-month ROTA of 25.32% is significantly higher than the industry average of 1.24%.
During the third quarter that ended September 30, 2023, GRVY’s total net revenue increased 72.1% year-over-year to $130.69 million. Its gross profit grew 37% from the prior year’s quarter to $43.26 million.
In addition, the company’s profit for the year grew 80.1% year-over-year to $21.50 million, and its earnings per share came in at $3.09, an increase of 80.2% from the previous year’s period.
Shares of GRVY has gained 83.4% over the past year to close the last trading session at $72.97.
GRVY’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
GRVY has an A grade for Value and a B for Growth, Sentiment and Quality. It ranks #2 in the same industry. Click here to access additional GRVY ratings (Stability and Momentum).
Stock #1: Electronic Arts Inc. (EA)
EA is a global gaming company known for popular franchises like Battlefield, The Sims, and FIFA. They develop, market, and distribute games across various platforms, utilizing digital and retail channels for sales.
On November 23, 2023, EA announced UEFA EURO 2024 integration into EA SPORTS FC 24, EA SPORTS FC Mobile, and EA SPORTS FC Online as a free in-game update, arriving in the summer of 2024. The update coincides with the tournament kick-off and offers exclusive UEFA EURO 2024 Ultimate Team Player items for players. These exclusive player items will feature top performers from the tournament, allowing players to build their dream teams with real-life stars.
EA’s trailing-12-month net income margin of 13.08% is 307% higher than the 3.21% industry average. Its trailing-12-month ROTA of 7.56% is 510% higher than the 1.24% industry average.
For the six months ended September 30, 2023, EA’s net revenue and gross profit increased 4.5% and 4.1% year-over-year to $3.84 billion and $3.01 billion, respectively.
The company generated operating income and net income of $919 million and $801 million, up 5.9% and 31.3% from the prior year period, respectively. Moreover, its EPS increased 34.4% year-over-year to $2.93.
Street expects EA’s revenue to increase 3.9% year-over-year to $7.63 billion for the year ending March 2024. Its EPS is expected to grow 10.6% year-over-year to $7.16 for the same period. It surpassed EPS estimates in three of four trailing quarters. EA’s shares have gained 28.5% over the past nine months to close the last trading session at $140.33.
EA has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Sentiment and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated EA for Growth, Stability and Momentum. Get all EA ratings here.
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EA shares were trading at $141.28 per share on Wednesday morning, up $0.95 (+0.68%). Year-to-date, EA has gained 16.35%, versus a 22.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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