The entertainment industry is witnessing significant growth due to the ever-growing popularity of gaming and interactive toys. Entertainment companies are benefiting due to the ease of access to gaming platforms, the growth of e-sports, the increase in online gambling, the popularity of mobile gaming, and technological advancements.
In light of these trends, investors could consider buying fundamentally strong entertainment stocks Nintendo Co., Ltd. (NTDOY), PLAYSTUDIOS, Inc. (MYPS), Playtika Holding Corp. (PLTK) and JAKKS Pacific, Inc. (JAKK) for Christmas gains.
Before diving deeper into the fundamentals of these stocks, let’s discuss the factors shaping the industry prospects.
The gaming industry has undergone several changes over the past few years, primarily due to Internet penetration. The pandemic also favored the sector as the shift in lifestyle and entertainment preferences significantly boosted the gaming industry.
With people spending more time indoors, gaming became famous as a form of entertainment and social interaction. Moreover, the industry’s interactive and engaging nature has boosted its appeal further. Projections indicate that the global gaming market is set to reach $665.77 billion by 2030, exhibiting a CAGR of 13.1%.
The gaming industry is well-positioned for long-term growth due to rising internet penetration, faster connectivity through 5G, the introduction of cutting-edge technologies like augmented reality (AR), virtual reality (VR), and artificial intelligence (AI), the popularity of eSports, and the accessibility of mobile and online gaming.
Apart from gaming, the world of gambling has also evolved and is still one of the most popular forms of entertainment globally. The global online gambling market is expected to grow at a CAGR of 11.7% to reach $153.57 billion by 2030.
Against this backdrop, let’s delve deeper into the fundamental aspects of the featured stocks from the Entertainment – Toys & Video Games industry, starting with the fourth pick.
Stock #4: Nintendo Co., Ltd. (NTDOY)
Headquartered in Kyoto, Japan, NTDOY develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It also offers video game platforms, playing cards, Karuta, other products, handheld and home console hardware systems, and related software.
In terms of the trailing-12-month EBIT margin, NTDOY’s 32.39% is 301% higher than the 8.08% industry average. Likewise, its 27.20% trailing-12-month net income margin is 746.7% higher than the 3.21% industry average. Furthermore, the stock’s 14.94% trailing-12-month Return on Total Assets is significantly higher than the 1.24% industry average.
NTDOY’s net sales for the six months ended September 30, 2023, increased 21.2% year-over-year to ¥796.24 billion ($5.47 billion). Its operating profit increased 27% over the prior-year period to ¥279.91 billion ($1.92 billion).
The company’s profit attributable to owners of parent rose 17.7% from the previous year's values to ¥271.30 billion ($1.86 billion). In addition, its profit per share came in at ¥233.03, representing an increase of 17.9% over the prior year period.
For fiscal 2024, NTDOY’s revenue is expected to increase 7.8% year-over-year to $11.23 billion. Over the past nine months, the stock has gained 25.7% to close the last trading session at $11.88.
NTDOY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality. It is ranked #9 out of the 18 stocks in the B-rated Entertainment - Toys & Video Games industry. Click here to see NTDOY’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #3: PLAYSTUDIOS, Inc. (MYPS)
MYPS develops and publishes free-to-play casual games for mobile and social platforms in the United States, North America, and internationally.
On November 14, 2023, MYPS announced the extension of its exclusive mobile licensing agreement with The Tetris Company for an initial five-year extension, which includes an additional three-year option (for up to eight years total), strategically securing the iconic TETRIS brand in its portfolio.
The Tetris licensing extension positions MYPS for sustained organic growth and cost-efficient audience development within key mobile gaming categories.
In terms of the trailing-12-month gross profit margin, MYPS’s 74.45% is 51.5% higher than the 49.13% industry average. Likewise, its 0.92x trailing-12-month asset turnover ratio is 79.2% higher than the 0.52x industry average.
For the fiscal third quarter, which ended September 30, 2023, MYPS’s net revenue increased 5.2% year-over-year to $75.86 million. Its net income increased 4.7% year-over-year to $3.80 million. Its AEBITDA also increased 38.6% over prior year quarter to $13.53 million. Its net income attributable to common stockholders per share came in at $0.03, rising 50% year-over-year.
Analysts expect MYPS’s revenue for the quarter ending June 30, 2024, to increase 1.4% year-over-year to $78.92 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 6.2% to close the last trading session at $2.58.
MYPS’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Sentiment. It is ranked #5 in the same industry. Beyond what we stated above, we also have given MYPS grades for Growth, Momentum, Stability, and Quality. Get all the MYPS ratings here.
Stock #2: Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituach, Israel, PLTK is a mobile game developer. The company has a selection of casual and casino-themed games. It offers its games to end users via various web and mobile platforms, such as Apple, Facebook, Google, and other web and mobile platforms and direct-to-consumer platforms.
On November 16, PLTK announced that its flagship game, June's Journey, hit a $1 billion lifetime gross revenue milestone, becoming the #1 highest-grossing hidden object game globally. The success underscores PLTK's leadership in narrative-driven casual gaming, showcasing its dedication to exceptional player experiences and strengthening its market position.
On September 28, 2023, PLTK announced its successful acquirement of Innplay Labs, an Israeli mobile gaming studio known for "Animals & Coins," marking its second strategic acquisition this quarter. The move underscores PLTK's dedication to expanding its mobile gaming portfolio and strengthening its position as a leader in the industry.
PLTK’s trailing-12-month EBIT margin of 21.15% is 161.9% higher than the industry average of 8.08%. Moreover, its trailing-12-month net income margin of 11.14% is 246.7% higher than the industry averages of 3.21%. Its trailing-12-month Return on Total Assets of 9.58% is 673.1% higher than the industry average of 1.24%.
For the fiscal nine months ended September 30, 2023, PLTK’s income from operations increased 11.2% from the year-ago value to $381.60 million. The company’s net income and net income per share attributable to common stockholders came in at $197.70 million and $0.54, respectively, rising 5.3% and 17.4% year-over-year.
Its credit-adjusted EBITDA stood at $643.3 million, representing an increase of 6.8% year-over-year. Additionally, its cash flows from operating activities increased 6.3% year-over-year to $336.30 million.
Street expects PLTK’s EPS for fiscal 2023 to increase 5.8% year-over-year to $0.73. Its revenue for fiscal 2024 is expected to increase 2.5% year-over-year to $2.63 billion. It surpassed the Street EPS estimates in three of the trailing four quarters, which is impressive. Over the past month, it gained 7.4%, closing the last trading session at $8.44.
PLTK’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. Within the Entertainment – Toys & Video Games industry, it is ranked #4. Click here to view PLTK’s Growth, Momentum, Stability and Sentiment ratings.
Stock #1: JAKKS Pacific, Inc. (JAKK)
JAKK designs, produces, markets, sells, and distributes toys and related products, kids' indoor and outdoor furniture, and other consumer products worldwide. It operates under two segments: Toys/Consumer Products and Costumes. Its offerings include action figures, toy vehicles, dolls, and accessories; infant and pre-school products; foot-to-floor ride-on products; role play and dress-up items; and kids’ indoor and outdoor furniture.
On November 1, 2023, JAKK announced that it is entering a long-term agreement with Authentic Brands Group to design and distribute products inspired by iconic brands like Forever 21 and Sports Illustrated, aiming for a global retail debut in 2024.
The collaboration aligns with JAKKS' strategy to expand into new product categories, targeting Millennials and Gen Z while leveraging Authentic's platform to diversify its seasonal offerings and explore additional collaborations.
In terms of the trailing-12-month net income margin, JAKK’s 12.18% is 172% higher than the 4.48% industry average. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 56.52% and 16.96% are 395.7% and 325.6% higher than the industry averages of 11.40% and 3.99%, respectively.
JAKK’s net sales for the third quarter ended September 30, 2023, came in at $309.74 million. Its gross profit increased 16.4% year-over-year to $106.99 million. The company’s income from operations rose 16.1% over the prior-year quarter to $62.40 million.
Its adjusted net income attributable to common stockholders increased by 28.4% year-over-year to $50.09 million. Its EPS came in at $4.75, rising 25% year-over-year. Additionally, its adjusted EBITDA increased 12.9% over the prior year quarter to $67.07 million.
For the quarter ending December 31, 2023, JAKK’s revenue is expected to increase 7.1% year-over-year to $141.30 million. Its EPS for fiscal 2023 is expected to increase 24.1% year-over-year to $5.31. Additionally, it topped the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 112.6% to close the last trading session at $31.50.
It’s no surprise that JAKK has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has an A grade for Value and Quality and a B for Sentiment. It is ranked #3 in the same industry. To see the other ratings of JAKK for Growth, Momentum, and Stability, click here.
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NTDOY shares were trading at $11.86 per share on Wednesday afternoon, down $0.02 (-0.17%). Year-to-date, NTDOY has gained 14.84%, versus a 22.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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