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These 3 Top Gaming Stocks Dominated the Sales Charts in July

By John Ballard – Sep 3, 2020 at 11:51AM

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Sony, Activision Blizzard, and Nintendo are enjoying strong momentum ahead of the busy holiday season.

The NPD Group recently released the 10 top-selling video games for July. At the top of the list was Sony's (SONY 1.05%) Ghost of Tsushima, followed by Activision Blizzard's (ATVI 1.68%) Call of Duty: Modern Warfare. Sony had a second title at No. 4 on the list with The Last of Us: Part 2.

But no game maker was more represented than Nintendo (NTDOY -1.40%). The classic Japanese gaming brand crushed it with five best-selling titles. 

At a time when competition for players' time is high given the shelter-in-place dynamics, what companies are filling the best-sellers chart is indicative of which video game companies are showing real leadership in the marketplace right now. Let's take a closer look at the three top gaming stocks dominating sales charts in July.

A girl sitting on a couch and playing a video game.

Image source: Getty Images.

1. Sony is charging into the new console cycle

Sony is involved in several business segments, including music, film, consumer electronics, and image sensors, but gaming is its largest, generating 30% of total revenue in the most recent quarter and 54% of Sony's operating profit.  

Ghost of Tsushima released on July 17 and sold through 2.4 million units in the first three days. Sony also had a big hit with The Last of Us: Part 2, which released on June 19 and sold 4 million units in its first three days after release. Both titles were two of the fastest-selling in-house titles for Sony on PlayStation 4. 

The PS4 is going out with a bang. Sony's gaming and network services segment had a phenomenal fiscal first quarter, with sales up 32.5% year over year. Strong sales of games and PlayStation Plus subscriptions drove a 68% increase in operating profit. Higher game and subscription sales offset a sharp decline in sold hardware units for the PS4, as gamers wait for the launch of the PlayStation 5 this holiday. 

The strong sales of recent game releases should lead to healthy demand for the PS5. There were reports in July that Sony was planning to produce 10 million units for the launch, but Sony recently announced a pre-order by invite only due to limited quantities that will be available on release day. Sony has yet to announce either a price or a specific release date. 

The stock is currently sitting close to new highs and trades at a forward price-to-earnings (P/E) ratio of 18. Despite the anticipated demand for PS5, Sony's sales and operating income are expected to decline for the full year, which might limit gains for the stock in the near term. However, continued momentum in game sales like we've seen recently may cause investors to revalue Sony stock at a higher P/E heading into next year.

2. Activision's Call of Duty has more than 100 million players

Activision's stock price has climbed about 40% year to date on the back of solid earnings reports. Activision is benefiting from the trend of gamers playing fewer games for longer periods of time. Call of Duty: Modern Warfare released last fall and was the primary contributor to the 72% growth in the company's total bookings in the second quarter. 

Management called the quarter a "step change" in engagement for Call of Duty. Total time spent in the game was up eight times compared to the year-ago quarter. That drove a 76% increase in in-game spending, reaching $1.37 billion. 

"Interactive entertainment, given its low cost per hour relative to other forms of entertainment, is a very compelling value for consumers," CFO Dennis Durkin said during the second-quarter conference call. 

Activision now has more than 100 million players in the Call of Duty franchise -- the best-selling console title of the last decade. The larger base should bode well for sales of the next installment, Call of Duty: Black Ops Cold War, releasing in November. 

Management's guidance calls for growth in net bookings and non-GAAP earnings per share of 19% and 23%, respectively, over 2019. With major new releases like Overwatch 2 and Diablo 4 waiting in the wings, the stock could have more room to climb over the next few years.

3. Nintendo's Animal Crossing has sold 22 million copies

Nintendo's performance last quarter was remarkable. Five games in July's top 10 best-selling games chart is no easy feat, but it's indicative of the strong demand for the Nintendo Switch console during the pandemic. Sales of Switch and the budget-friendly Switch Lite sold a combined 5.68 million units last quarter for an increase of 166% year over year. 

Strong sales of Animal Crossing: New Horizons, which released in March, get some of the credit. The game sold 10.63 million units in the fiscal first quarter, bringing cumulative sold units to 22.4 million. That was followed by Mario Kart 8 Deluxe, which sold 1.97 million units. Both games made NPD's July top sellers chart.

Nintendo's top-selling title in July was Paper Mario: The Origami King, which was a new release. Ring Fit Adventure and Super Smash Bros. Ultimate rounded out Nintendo's top sellers.  

ATVI Chart

ATVI data by YCharts

The new consoles from Sony and Microsoft shouldn't give Nintendo much competition this holiday, given Nintendo's niche as a family-friendly gaming brand. Looking ahead to 2021, there are reports that Nintendo is planning an upgraded Switch model that will feature a more advanced display and interactivity features. 

For the near term, Nintendo has tremendous momentum heading into the holiday season. In its earnings report, the company said: "We will work to keep the platform active with new titles and by reinforcing sales of popular titles that have already been released."

Despite a sharp rise over the last month, Nintendo stock still trades at a modest valuation compared to other gaming stocks, sporting a P/E of 19.9. 

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Activision Blizzard and Microsoft. The Motley Fool owns shares of and recommends Activision Blizzard and Microsoft. The Motley Fool recommends Nintendo and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, long January 2022 $75 calls on Activision Blizzard, and short January 2022 $75 puts on Activision Blizzard. The Motley Fool has a disclosure policy.

Stocks Mentioned

Sony Group Stock Quote
Sony Group
SONY
$83.94 (1.05%) $0.87
Nintendo Stock Quote
Nintendo
NTDOY
$10.58 (-1.40%) $0.15
Activision Blizzard Stock Quote
Activision Blizzard
ATVI
$75.19 (1.68%) $1.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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