Video gaming has evolved into a multibillion-dollar industry. Despite its rapid growth and development, there is still time for investors to hop on board this growth train before it's too late. The market is expected to grow at a compound annual growth rate (CAGR) of 12.9% from 2020 to 2027, according to a Grand View Research analysis, as the millennial and centennial generations earn more disposable income to spend on the things they love. 

Several companies are positioned well to benefit from this megatrend, including three video game companies that would make great buys in August. The first pick is Activision Blizzard (NASDAQ:ATVI), a blue-chip gaming giant famous for smash hits like Call of Duty and World of Warcraft. The second pick is Take-Two Interactive (NASDAQ:EA), a rapidly growing rival with a strong portfolio of exciting intellectual property. Finally, we have Zynga (NASDAQ:ZNGA), a mobile game developer driving growth through highly synergistic acquisitions. Let's find out a bit more about them.

Video game setup in a darkly lit room.

Image source: Getty Images.

1. Activision Blizzard

Activision Blizzard is a leading game developer famous for hit franchises like Call of Duty, World of Warcraft, and Overwatch. The company has enjoyed a boost from stay-at-home demand amid the coronavirus pandemic, with shares rocketing 72% year-to-date. But despite its large $63 billion market cap, Activision stock is positioned for continued growth because of resilience in its top franchises and a strong business model. 

Activision's legacy franchises are as healthy as ever -- and the value of this intellectual property goes a long way toward justifying the company's generous valuation at 30 times forward earnings. The Call of Duty franchise remains a cash cow, and Activision is expanding its monetization strategy with a new title, Call of Duty: Warzone, which uses a lucrative freemium business model. The game is free to download, but players are charged for special features and expanded functionality. Warzone hit 60 million downloads in a few months after its release, making it one of Activision's fastest-growing releases to date.

Activision has a current dividend yield of 0.5%, and has increased its payout for 10 consecutive years. While the dividend looks small, it's a nice addition to the company's impressive stock price performance and represented just 19% of net income in fiscal 2019. 

2. Take-Two Interactive

Take-Two is another mature gaming giant that has performed exceptionally well this year, with shares soaring 34% in 2020 so far compared to the S&P 500's measly 1% year-to-date rally. The company has a market cap of $18 billion, and is positioned for continued growth because of its legacy franchises and strong development pipeline.

Take-Two is known for popular action/adventure game franchises like Red Dead Redemption and Grand Theft Auto, which are developed through the company's in-house publishing label, Rockstar Games. Both assets enjoyed a boost from stay-at-home demand during the coronavirus pandemic, with Grand Theft Auto Online posting recurrent consumer spending growth of 87% in the first quarter of fiscal 2020 (which ended on March 31). Red Dead Redemption 2 also exceeded management's expectations, selling over 31 million units worldwide according to Take-Two's most recent earnings call on May 20. 

Take-Two has a robust pipeline poised to deliver continued growth across a variety of platforms and distribution channels. In July, the company entered into a publishing deal with Microsoft to develop games for the Xbox One platform and the upcoming Xbox Series X through May 31, 2023. This move should help the company better monetize its fantastic intellectual property and reach more gamers.

3. Zynga

Zynga is a mid-cap video game developer that has already seen its stock price soar by 60% year to date. Unlike the other companies on this list, Zynga focuses on the mobile gaming market, a subset of the industry with unique challenges and opportunities.

Mobile gaming is a crowded and competitive field because of its low barrier to entry, making it hard for companies to develop new intellectual property that can stand out amid the competition. That's why Zynga uses a unique roll-up business model where it acquires already established mobile games and synergizes them into its existing operations.

In July, Zynga closed the $1.85 billion acquisition of Istanbul-based Peak Games. The deal gives Zynga access to Toon Blast and Toy Blast, two popular mobile franchises that have consistently ranked in the top-10- and top-20-grossing smartphone games in the past two years. The acquisition will also give Zynga access to the proven team behind Peak Games, which could help the combined company develop more assets in the future.

Zynga's core operations are also performing well, with revenue up 52% to $404 million in the first quarter. This growth was partially driven by assets developed by Small Giant Games and Gram Games, two start-ups that Zynga acquired in 2018 for $560 million and $250 million, respectively.