Top 3 Gaming Stocks to Ride Out Coronavirus & Self-Isolation

Gaming Stocks Proving to Be Resilient 

Governments around the world are closing their borders and telling people to self-isolate in order to avoid catching and spreading coronavirus (COVID-19). One industry that has been experiencing immediate benefits from this situation is video games. In fact, online gaming has surged since the coronavirus outbreak has effectively shut down the global economy.

This is good news for investors in gaming stocks.

Steam, an online digital gaming portal, reached an all-time high number of users on March 14. That day, almost 20 million gamers logged onto Steam at the same time. (Source: “Coronavirus Lockdown Puts 20 Million Real-Time Gamers on Steam,” CCN, March 14, 2020.)

That record was slightly higher than the previous coronavirus-fueled record of 19.1 million set in February. With the way things are shaping up, chances are good that Steam will trump that record in the coming weeks.

Three Top Gaming Stocks

With that in mind, here are three of the top gaming stocks that investors should keep an eye on during the coronavirus pandemic and beyond.

Zynga Inc

Founded in 2007, San Francisco-based Zynga Inc (NASDAQ:ZNGA) has helped more than one billion gamers across the globe whittle away the hours through its mobile apps. Some of its most popular games are FarmVille, Words With Friends, and CSR Racing. (Source: “Overview,” Zynga Corp, last accessed March 18, 2020.)

The gaming company is always expanding its product offerings. It recently held a soft launch of Harry Potter: Puzzles & Spells and in the second half of 2020, it expects to launch a number of new titles, including Puzzle Combat and FarmVille 3.

On top of that, Zynga is working on Star Wars games, and its Gram Games division is adopting shorter, more intense games it calls “hyper casual” games.

Record Q4 Revenue & Bookings

In February, Zynga announced that its fourth-quarter revenue, for the period ended December 31, 2019, jumped 63% year-over-year to a record $404.0 million. This tops the company’s own guidance of $365.0 million. (Source: “Q4 2019 Zynga Quarterly Newsletter,” Zynga Inc., February 5, 2020.)

Zynga reported record online gaming revenue (also known as user pay revenue) of $325.0 million, an 84% increase from the same prior-year period. User pay bookings climbed 80% to $354.0 million.

Zynga reported record bookings of $433.0 million, beating its own guidance of about $415.0 million. The 62% year-over-year bookings increase came on better-than-expected results from Words With Friends, Empires & Puzzles, and Merge Magic!

Advertising revenue went up 11% year-over-year and bookings went up 12%, both setting records.

Zynga reported a fourth-quarter net loss of $4.0 million, compared to net income of $1.0 million in the fourth quarter of 2018. That said, the fourth-quarter 2019 net loss was $41.0 million better than guidance.

Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was $75.0 million, significantly above guidance of $50.0 million.

During the fourth quarter, Zynga generated operating cash flow of $94.0 million, up five percent year-over-year. That brought its cash and investments balance to about $1.5 billion as of December 31, 2019.

Zynga 2020 Outlook

For the first quarter of 2020, Zynga expects:

• Revenue of $385.0 million, a 45% increase from the first quarter of 2019
• Net increase in deferred revenue of $15.0 million
• Bookings of $400.0 million, up 11% from the first quarter of 2019
• Net loss of $26.0 million
• Adjusted EBITDA of $57.0 million

For full-year fiscal 2020, Zynga expects:

• Revenue of $1.6 billion, a 21% increase from fiscal 2019
• Net increase in deferred revenue of $150.0 million
• Bookings of almost $1.8 billion
• Net loss of $130.0 million
• Adjusted EBITDA of $200.0 million

Sea Ltd

Sea Ltd (NYSE:SE) is an Internet and mobile gaming stock. The company operates across three types of platforms: online games (“Garena”), e-commerce (“Shopee”), and digital financial services (“SeaMoney” and “AirPay”). (Source: “About Us,” Sea Ltd, last accessed March 18, 2020.)

Through Sea Ltd’s Garena platform, users can access the company’s mobile and PC games. The company’s target geographic audience is in Asia.

Shoppe is the leading e-commerce platform in Southeast Asia and Taiwan, providing buyers and sellers with a secure and fast online shopping experience.

AirPay is Sea Ltd’s digital financial services platform, providing e-wallet services to individuals and small businesses in Southeast Asia. Through AirPay, people can either use the company’s app or its brick-and-mortar counters to make payments for everyday products, services, and bills.

AirPay provides important services for regions with large populations that are under-served by the banking community. That might explain why it’s one of the fastest-growing digital financial services networks in Southeast Asia.

Q4 Revenue Up 174%

On March 3, Sea Ltd announced its financial results for the fourth quarter and fiscal year ended December 31, 2019. Total revenue went up 174% year-over-year to $777.2 million. (Source: “Sea Limited Reports Fourth Quarter and Full Year 2019 Results,” Sea Ltd, March 3, 2020.)

Digital entertainment revenue increased 208% to $404.1 million while e-commerce and other revenue climbed 164% to $296.5 million.

Sea Ltd reported a full-year net loss of $281.9 million, a slight increase from the loss of $276.1 million in the fourth quarter of 2018.

For fiscal 2019, total revenue increased 163% year-over-year to $2.2 billion, while total adjusted revenue went up 178% to $2.9 billion. Digital entertainment revenue surged 146% to $1.1 billion while e-commerce and other services revenue soared 205% to $822.7 million.

Sea Ltd 2020 Outlook

For fiscal 2020, Sea Ltd expects its adjusted revenue from digital entertainment  to be between $1.9 and $2.0 billion. At the midpoint, that represents a 10.8% increase from 2019.

The company expects its adjusted revenue from e-commerce to be between $1.7 and $1.8 billion. At the midpoint, that would be an 88% increase from fiscal 2019.

Electronic Arts Inc

Electronic Arts Inc. (NASDAQ:EA) is a leading provider of digital games. The Redwood City, California-based gaming company develops games, content, and online services to gamers connected through consoles, mobile devices, and personal computers. (Source: “About,” Electronic Arts Inc., last accessed March 18, 2020.)

Some of its most popular game brands are EA SPORTS FIFA, The Sims, and Madden NFL. During the just-completed third quarter of 2019, EA launched Plants vs. Zombies: Battle for Neighborville, Need for Speed Heat, and Star Wars Jedi: Fallen Order. (Source: “Electronic Arts Reports Q3 FY20 Financial Results,” Electronic Arts Inc., January 30, 2020.)

The company sells its games through digital distribution channels like Steam.

Q3 Revenue Up 24%, Net Income Up 32%

On January 30, EA announced its preliminary financial results for the third quarter of fiscal 2020 (ended December 31, 2019). Total third-quarter revenue climbed 24% year-over-year to $1.6 billion. (Source: Electronic Arts Inc., January 30, 2020, op. cit.)

Digital net revenue went up 24% to $1.1 billion while packaged goods and other net revenue increased 23% to $469.0 million. Third-quarter net income grew 32% year-over-year to $346.0 million.

Operating cash flow was $1.1 billion, up 16% year-over-year.

“Over the last twelve months, we have delivered record live services revenue, live services net bookings and operating cash flow,” said COO and CFO Blake Jorgensen.

“Our broad-based business model reduces our dependence on individual titles and enables us to deliver financial results for our shareholders by providing a constant stream of high-quality entertainment for our players.”

Jorgensen went on to say that EA expects its live services to continue to drive growth in fiscal 2021, and for growth to accelerate in fiscal 2022.

Electronic Arts 2020 Outlook

For fiscal 2020 (ending March 31, 2020), EA expects:

• Net revenue of about $5.5 billion, up 10.6% from fiscal 2019
• Net income of about $2.9 billion, up 190% from fiscal 2019
• Operating cash flow of about $1.7 billion, up 18% from fiscal 2019

Analyst Take

Investors are looking for stocks that will perform well during the coronavirus pandemic. Unfortunately for many of these stocks, the tailwind will be short-lived.

One area that has been experiencing long-term sustained growth—benefiting from the coronavirus-related self-isolating—is the video game industry. As outlined above, three of the best gaming stocks right now are Zynga Inc, Sea Ltd, and Electronic Arts Inc.