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Investing, Stocks  | December 1, 2020

Having witnessed several small businesses close their doors permanently due to the disruption of the novel coronavirus, it’s hard to imagine that any industry has fared well during this unprecedented crisis. Tragically, more than a quarter-of-a-million Americans have succumbed to Covid-19 — a grim reminder of the pandemic’s toll. Nonetheless, video games have weathered this awful storm. And in many ways, it’s understandable why.

First, when the initial cases of coronavirus began spiraling out of control, both state and federal authorities implemented lockdown measures. Suddenly, most vestiges of normal societal functions — noise, traffic, live sports — faded into the darkness, creating an eerie ambiance. To help fill the void, demand for home entertainment platforms such as streaming skyrocketed. And logically, this ramped up revenue influx also took video games along for the ride.

Second, consumers didn’t just hunker down to activities they normally reserve for a rainy day. Instead, many people used the pandemic to broaden their horizons. According to data from Simon-Kucher & Partners and Dynata, 60% of gamers worldwide played different types of video games than they usually do during the months of May and June. Unexpectedly, content developers benefitted from a free marketing opportunity they normally wouldn’t receive pre-pandemic.

Third, demand for digital video games — as opposed to premium console and PC games — increased the most worldwide in March. That’s according to SuperData Research, and it makes sense. With everyone forced to change their life overnight and entertainment access limited to digital channels only due to physical lockdowns, digital downloads experienced a bonanza.

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However, will these factors still support video games during this resurgence of the coronavirus? While we may have become somewhat accustomed to the new normal, demand for pleasant distractions have never been greater. Therefore, I see a long-term upside pathway for these video game stocks:

  • Sony (NYSE:SNE)
  • Microsoft (NASDAQ:MSFT)
  • Electronic Arts (NASDAQ:EA)
  • Activision Blizzard (NASDAQ:ATVI)
  • Nintendo (OTCMKTS:NTDOY)
  • Advanced Micro Devices (NASDAQ:AMD)
  • Logitech (NASDAQ:LOGI)
  • Turtle Beach (NASDAQ:HEAR)
  • Glu Mobile (NASDAQ:GLUU)

Finally, the K-shaped economic recovery is a real phenomenon. According to data from CouponFollow.com, almost 30% of people “foresee their gift-giving budgets increasing since the pandemic began.” In other words, when people want to spend money on what they want, suddenly, that money magically materializes. Thus, this dynamic should profit these video game stocks handsomely.

Video Games Stocks to Buy: Sony (SNE)

I like companies with verticals (such as InvestorPlace), not necessarily companies with vertical consoles. Still, that’s about the only thing I can complain about regarding Sony and its next-generation gaming platform, the PlayStation 5. In late October, Reuters reported that Sony saw “very considerable” demand for its latest console.

Moreover, “Sony pre-sold as many PS5 consoles in the first 12 hours in the United States as in the first 12 weeks for its predecessor PlayStation 4 device, Jim Ryan, CEO of Sony Interactive Entertainment, said in an interview.” That is about as clear of a signal to consider SNE stock as any other factor.

If you’re an older millennial, you may remember the “Bo Knows” commercials featuring two-sport superstar Bo Jackson. Well, Sony knows video games. And I don’t think it’s any hyperbole to say that the most important catalyst for SNE stock is the PlayStation.

During hard times, it kept the lights on. And I’m sure when it’s rocking and rolling like it is now, the PlayStation will provide ample growth and synergies. If early demand indicators are anything to go by, the PS5 will significantly outpace its predecessor.

Microsoft (MSFT)

Following its transition to new leadership under CEO Satya Nadella, Microsoft rarely made mistakes. However, when it came to competing against Sony in the video games arena, it made a conspicuously — and I would argue silly — error.

For some inexplicable reason, Microsoft decided to release two versions of its latest-gen Xbox console — a full-power version and a dumbed-down one. The idea was to branch out to a wider market than Sony commanded, which made no sense. In fact, according to The Verge, some Microsoft insiders questioned the decision.

Having worked in corporate America, I know what it’s like when your superiors appear to have disconnected from reality. Nevertheless, I like MSFT stock. For one thing, the Xbox caters to a surprisingly viable market: people who prefer inferior products.

Of course, I’m only kidding. There are many other reasons to consider the Xbox, including exclusive titles that you wouldn’t get on the PS5 (to be fair, though, this works the other way around too). Plus, if you don’t really care for the exposure to video games, you can always consider MSFT stock as an all-around software and application powerhouse.

Video Games Stocks to Buy: Electronic Arts (EA)

When the coronavirus pandemic disrupted professional sports leagues, that was a critical blow to traditional TV subscribers. Why bother paying for expensive linear TV services when its main advantage over streaming outlets — sports and live events — have been utterly disrupted? Ironically, though, the case for video games linked to live sports improved significantly, bolstering sector giant Electronic Arts.

Consistently, one of my main arguments for EA stock has been the underlying EA Sports brand. Featuring exclusive licenses with the NFL and FIFA, the only way to enjoy the true experience of football and soccer (or American handball and football, respectively, if you’re from the U.K.) is to buy the EA-branded franchises. And it doesn’t matter that competing titles offer superior gameplay; Consumers buy the latest upgrade from EA like crack addicts.

Frankly, EA stock has similar underpinnings to vice stocks, which tends to arouse anger among many hardcore gamers. Still, my argument for Electronic Arts is that the company has the target consumer by the nether regions. It’s not pretty, but it’s usually profitable.

Activision Blizzard (ATVI)

Outsiders not familiar with or interested in video games may scoff at Activision Blizzard and its investment in esports. Nerds playing video games for others to watch? How the heck is that an athletic competition worthy of my or anyone’s dollars? Well, you’d be surprised.

For one thing, traditional sports viewership just isn’t going anywhere. According to data from eMarketer, the growth in live sports viewers in the U.S. is projected to be 3% between 2019 and 2023. Contrast this with global esports viewership, where growth is expected to jump by nearly 49% among frequent viewers and by 43% among occasional viewers over the same period. That’s a clear indicator to consider ATVI stock.

Another catalyst is that big blue chips are recognizing the massive long-term opportunities in esports. For instance, IBM (NYSE:IBM) recently inked a deal with Activision Blizzard to be the presenting partner of the “Overwatch League” grand finals. If the concept was completely speculative, I doubt that “Big Blue” would bother getting involved — particularly because IBM is also engineering its own comeback.

Finally, don’t forget that ATVI stock is levered to the Call of Duty franchise. In recent years, Activision returned to what made the series so popular, rekindling interest among investors.

Video Games Stocks to Buy: Nintendo (NTDOY)

With Sony and Microsoft dominating the console wars, Nintendo often gets lost in the shuffle. But it’s not just because the war is a binary affair. As you know, the modern consumer has gravitated toward grittier content. Even Disney’s (NYSE:DIS) The Mandalorian has a darker edge than other Star Wars-related content, which I believe will be one of the Magic Kingdom’s keys to success.

Of course, this dynamic really leaves NTDOY stock in the shadows because the underlying company focuses on family-friendly entertainment. After all, the original Nintendo console brought the family together for a new kind of fun. That said, this remains true today. Thus, you won’t find Nintendo gravitating toward scandalous or titillating titles.

Does that make NTDOY stock irrelevant in the often high-octane arena of video games? I don’t think so, and that’s because demographics are a key to company destiny. Roughly speaking, the youngest millennial is now in their mid-twenties — bear in mind that generations are rolling categories. Therefore, many if not most in this demo are settling down, which caters to Nintendo.

Put another way, don’t be surprised if Nintendo enjoys a second wave.

Advanced Micro Devices (AMD)

Throughout my various discussions on video games, I’ve tilted my discussion toward graphics processor giant Nvidia (NASDAQ:NVDA). Primarily, this was because I appreciate the myriad innovations that NVDA is connected to, such as smart city infrastructure. But I don’t want to keep milking the same cow, so let’s give Advanced Micro Devices some love.

Again, if you’re looking at video games from an outside perspective, you might question AMD stock. Mainly, AMD’s top graphics processors can be incredibly expensive. It just doesn’t seem that consumers will fork over that much money for a hobby.

But the gaming industry has changed dramatically from its humble origins. Today, it’s perfectly commonplace for professional athletes to train on computer simulators to improve their real-life craft. This is most evidence in auto racing, where gaming platforms can effectively simulate the overall experience.

Naturally, these high-tech simulators don’t just run on any old processor. Therefore, it’s very possible that AMD stock will continue driving higher as gaming technology improves.

Video Games Stocks to Buy: Logitech (LOGI)

From a business angle, a compelling reason to get involved with video games is the multiple revenue channels available. Building a console is one discipline. But consoles alone aren’t enough to generate interest if they didn’t have intriguing games to play. Even then, games can be found lacking without an array of controllers and apparatuses.

For most people, Logitech is best known for its multiple computer products and equipment. In fact, I’m preparing this gallery article with the help of a Logitech wireless mouse, which I absolutely love. However, what’s really attractive for LOGI stock is the underlying gaming controller business.

As I alluded to above with AMD, a tremendously popular video game category is racing games and simulators. Unlike first-person-shooter games, you can better transfer the skills from digital driving to “analog” driving in a much more logical fashion. Given that racing titles will probably only increase in popularity, Logitech’s various steering wheel controllers should provide strong revenues.

Furthermore, flight simulators represent another popular gaming category, to which Logitech also covers with yoke and throttle controllers. Essentially, the company bridges the gap between fantasy and reality — boosting the narrative for LOGI stock.

Turtle Beach (HEAR)

Recently, I had my first semi-dynamic conversation with a non-related person in a very long time. And that was when I realized a personal consequence of the Covid-19 shutdowns: I gradually have forgotten how to interact with humans. Not that such interactions were my forte, but still; it was weird that I felt weird being out in public.

Nonetheless, this brings me to Turtle Beach and the relevance of video games. As you may know, HEAR stock has enjoyed renewed enthusiasm because of its gaming-centric headsets. Increasingly, modern gamers prefer multi-player entertainment. Therefore, even with the disruption of the coronavirus pandemic, Turtle Beach users can still practice their communication skills.

In all seriousness, HEAR stock may have more upside remaining. True, shares are riskier than other gaming investments. However, the business model for high-contact entertainment venues could be facing severe threats, especially if the coronavirus becomes an endemic. In that case, companies that make home entertainment platforms more robust and immersive could benefit, supporting HEAR’s speculative argument.

Video Games Stocks to Buy: Glu Mobile (GLUU)

Sometimes, a disaster is exactly what you need to get on the right track. Just ask Glu Mobile. Back in 2019, GLUU stock suffered a cataclysmic erosion of market value, dropping from above $11 to around $4. But when the pandemic hit, easily accessible entertainment became a hot commodity — eventually driving up shares to double digits.

At time of writing, GLUU stock is trading around $9.50 after dropping to below $7 in early November. That tells me that it’s possible that shares of the mobile gaming firm are tracking daily Covid-19 infections. If so, we could see another leg up for GLUU. I’m not going to play the prediction game, but I’ll be surprised if the pandemic doesn’t worsen before it gets better.

A major concern I have is that the coronavirus is a fluid crisis. If the virus mutates and another strain develops, it’s possible that the vaccines we have now could be rendered useless. Obviously, I hope that doesn’t turn out to be the case because I’m sick of this crap, to be blunt.

However, if circumstances do worsen, you may want to check out Glu Mobile.


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