3 Video Game Stocks You Can Buy And Hold For The Next Decade
Many video game stocks have skyrocketed in 2020 as consumers purchased more consoles and games throughout the pandemic. But over the past year, many of those stocks have lost their luster as investors worried about post-pandemic downturns. China’s crackdown on video game companies, the continued shortage of chips, and the massive sell-off of tech stocks have made gaming stocks even less attractive.
The video game industry will face difficult year-to-year comparisons in the coming quarters. But over the next decade, many of the major video game stocks could recover a lot more. Let’s take a look at three actions that fit this description: Nintendo (OTC: NTDOY), Unity software (NYSE: U), and Roblox (NYSE: RBLX).
Nintendo has been producing market-leading gaming consoles for nearly four decades, and its proprietary franchises, which include Mario, Zelda, and Metroid – have entertained several generations of players.
Nintendo launched its latest video game console, the Switch, in 2017. It expanded that line with the cheaper Switch Lite in 2019 and introduced the Switch OLED, which adds a bigger and better screen, this year. Nintendo has shipped 91.1 million Switch consoles in the past four and a half years.
However, Nintendo’s stock has lost almost a third of its value this year as it faces a short-term slowdown. Nintendo’s sales soared 34% in 2020 as more people played its video games during the pandemic, but it expects its sales to drop 9% this year as it grapples with difficult year-to-year comparisons and struggles with the global chip shortage. Some investors were also disappointed that Nintendo didn’t introduce a more powerful Switch or a brand new console this year.
Nintendo’s growth will inevitably subside this year, but I think it will surprise gamers and investors again – as it did with the original Wii and the Switch – over the next decade or so. Meanwhile, expanding its franchises with new theme park attractions and new movies could keep people interested in its games, increase its licensing revenue, and pave the way for new versions of consoles and games to be released. the future.
2. Unity software
Unity’s game engine powers more than half of the world’s PC, console, and mobile games. Unity makes the development of cross-platform games much easier. In the past, developers often created their own graphics, rendering, sound, and UI features and then coded them separately for each gaming platform.
This process was buggy, time consuming and expensive. This is why Unity and other similar game engines, like Epic games‘Unreal Engine, have become essential tools for most video game companies.
A game developer can create a game in Unity without any additional tools and launch it on multiple platforms. Unity also provides additional tools for embedding ads, processing in-app payments, hosting multiplayer games, and analyzing game performance.
The global games market could grow at a compound annual growth rate (CAGR) of 12.9% from 2020 to 2027, according to Grand View Research. If Unity simply matches this growth rate, its annual revenue could rise from $ 772 million in 2020 to over $ 1.8 billion in 2027.
But Unity is already growing much faster than the gaming market. Its revenue grew 43% in 2020, and it expects 35% to 37% growth this year. It’s not profitable yet, but he expects to achieve non-GAAP profitability by 2023. Unity stock is not cheap at 34 times this year’s sales, but its revenue could increase much more over the next decade if it continues to power more than half of the world’s video games.
Roblox can be thought of as a gamified, interpolation-oriented version of Unity. Its platform allows users to create and share simple block-based games without any coding knowledge, and then monetize them with a game currency called Robux, which can be exchanged for real money.
Roblox became a household name during the pandemic as more students stayed home and spent more time on their computers. Its bookings jumped 82% in 2020 and then grew a further 77% year-on-year in the first half of 2021. It ended the second quarter with 43.2 million daily active users, up 29% from a year ago, when its average hours worked increased 13% to 9.7 billion.
These growth rates are impressive, but Roblox remains unprofitable, faces concerns of a post-pandemic slowdown, and has inventory that appears expensive at 17 times this year’s sales. Its reliance on interpolated users could put it at greater risk to the safety of minors as the platform grows, and some of its users could switch to more advanced game engines like Unity or Unreal. to create more sophisticated games.
These concerns are all valid, but I think the share of Roblox could increase over the next 10 years as it is a self-sustaining platform powered by creators like YouTube. Roblox doesn’t need to develop new games like Nintendo or board game studios like Unity – it just needs to let its community thrive and produce more games on its own to keep growing.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.