In the last few years, gaming stocks have been on an absolute tear and have crushed the broader markets. The COVID-19 pandemic then acted as a massive tailwind for these companies as people were confined to their homes with limited entertainment options.
As the world returns to normalcy, there is a good chance for the revenue of gaming companies to decelerate in the upcoming quarters. However, the global gaming industry continues to grow at a rapid clip making companies such as Roblox (NYSE: RBLX) some of the top stocks to watch out for in 2021 and beyond.
Here, we take a look at two gaming stocks that should be on the radar of growth investors.
Roblox
Roblox went public three months back and has since returned 28.4% to investors. However, it’s also trading 11% below its all-time high. Roblox develops and operates an online entertainment platform. It has three primary business segments that include Roblox Client which is an application enabling users to explore 3D digital worlds. Further, Roblox Studio is a toolset where developers and creators can build, publish and operate 3D experiences while Roblox Cloud is a solution that provides services and infrastructure to power the human co-experience platform. The company serves customers in the U.S., Canada, Europe, Asia-Pacific, and other international markets.
In the first quarter of 2021, Roblox attracted 42 million users which were 79% higher compared to the prior-year period. These users spent a cumulative 9.7 billion hours on the platform which was an increase of 98% year over year.
Despite the easing of restrictions in the U.S., Roblox gained over 1.3 million daily active users in Q1 of 2021. The company is also well poised to expand its user base given that kids under the age of 13 account for 50% of total users. In 2020, Roblox more than doubled its DAUs for users over the age of 13 and these trends should continue in 2021 as well.
In Q1, the company’s sales were up 140% year over year at $387 million driven by a massive uptick in DAUs and hours spent on the platform. Its bookings which is basically the amount of virtual currency bought on the platform was up 161% at $652.3 million. This growth helped Roblox to increase average bookings per DAU by 46% to $15.48 in the March quarter.
Wall Street forecasts Roblox to grow sales by 186% to $2.65 billion in 2021 and by 18.7% to $3.14 billion in 2022. This growth will allow the company to improve its bottom line from a loss of $0.48 per share in 2020 to earnings of $0.81 per share in 2021.
Zynga stock is up 322% in the last five years
Zynga (NASDAQ: ZNGA) is a company that provides social game services in the U.S. and several other international markets. It develops, markets, and operates games as live services played on mobile devices, social media platforms as well as personal computer consoles, and other platforms. Zynga has several mobile gaming franchises that are popular among gamers including Farmville and Hit it Rich! Slots.
Zynga also provides advertisement services that consist of mobile and engagement ads as well as branded virtual items and sponsorships. In the first quarter of 2021, Zynga sales were up 68% year over year at $680 million while adjusted earnings per share stood at $0.08.
The company surprised Wall Street after it announced a $250 million acquisition of Chartboost which is an ad platform that leverages machine learning to help developers monetize applications. Chartboost has a robust network of developers giving Zynga a chance to diversify its revenue base.
In Q1, Zynga’s ad revenue more than doubled and accounted for 18% of total sales. The recently announced acquisition should help Zynga to enhance capabilities and grow ad revenue for mobile games. According to a report from eMarketer, mobile ad sales spending might double by 2024 to $174 billion.
After a strong performance in Q1, Zynga raised its guidance for 2021 and forecast sales of $2.7 billion, representing year-over-year growth of 37%. Its Bookings are forecast to rise 28% to $2.9 billion. Its net loss is forecast at $135 million which is much narrower compared to a net loss of $429 million in 2020.
Zynga stock is already up 322% in the last five years and is poised to derive outsized gains going forward as well.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
