Last year, U.S. consumers spent $57 billion on gaming content and hardware, a 27% increase over 2019. And according to consulting firm Deloitte, 33% of U.S. consumers (and roughly half of Gen Z and millennials) said video games were critical in helping them cope with the coronavirus pandemic.

These numbers mark the acceleration of a trend that was already in place: Gaming is becoming more popular. And as that trend continues to play out, Activision Blizzard (NASDAQ:ATVI) and Microsoft (NASDAQ:MSFT) look like good video game stocks to own. Here's what investors should know.

Young woman engaged in video game, with a high tech setup.

Image source: Getty Images.

Activision Blizzard

After a restructuring year in 2019, Activision Blizzard came back strong in 2020. Powered by the recent release of several new titles and strong performance across all three divisions -- Activision, Blizzard, and King -- the company's top line returned to growth last year, jumping 25% to $8.1 billion.

Among these new releases, Call of Duty: Mobile launched in October 2019. This is the franchise's first free-to-play mobile version, and it combines many fan favorites from previous Call of Duty titles. The launch was a resounding success, with 35 million downloads in the first three days and over 300 million downloads as of Nov. 13, 2020. And by offering a free-to-play option, Activision hopes to pull more consumers into the Call of Duty ecosystem, which should help the company grow revenue in the long run.

Likewise, in an effort to reduce top-line volatility and compete with games like Fortnite: Battle Royale, Activision released Call of Duty: Warzone in March 2020, the series' first free-to-play installment for consoles and PC. This was followed by Call of Duty: Black Ops Cold War, which launched in November 2020, and has already become one of the top 20 best-selling games of all time.

The company's other divisions also performed well last year. Blizzard's World of Warcraft: Shadowlands went live in November 2020, selling over 3.7 million units on the first day -- more than any other PC game in history. And for King Digital Entertainment, Candy Crush was again the top grossing franchise in U.S. app stores, driving more in-game purchases and a nearly 50% jump in advertising net bookings (revenue minus deferrals).

This solid performance across the board helped drive growth in monthly active users (MAUs).

Metric

Q4 2018

Q4 2020

Change

Monthly active users*

356 million

397 million

12%

Source: Activision SEC filings. Note: Includes MAUs from Activision, Blizzard, and King.

Going forward, Activision plans to extend the free-to-play framework beyond Call of Duty, bringing the new business model to other game titles. And while Activision currently has three franchises that generate over $1 billion in annual net bookings (Call of Duty, Warcraft, and Candy Crush), the company anticipates "at least two" other franchises will join these ranks in the coming years. That's encouraging news for investors.

Microsoft

In fiscal year 2020, Microsoft generated $9.5 billion in gaming revenue, making the company's gaming business even larger than Activision. And the strong growth has continued into fiscal 2021. Following the highly successful launch of the Xbox Series X and S last November, Microsoft's gaming revenue surged 51% in the most recent quarter.

Newly launched white Xbox Series S and black Xbox series X.

Image source: Microsoft.

One of Microsoft's big advantages is top-line consistency. The Xbox is the number twomost popular video game console in the world behind Sony's Playstation , and that allows Microsoft to sell monthly subscriptions like Xbox Live Gold and Game Pass Ultimate, which give gamers multiplayer options, access to free content, and discounts on game titles.

In other words, many different gaming companies use Xbox and Windows 10 as content distribution platforms. This reduces Microsoft's reliance on new releases from any single publisher and makes the company somewhat immune to the cyclical revenue fluctuations that plague the industry.

Furthermore, Microsoft's gaming segment is only a fraction of its top line. The company also has several other lines of business. For example, Microsoft Office is the most popular productivity software in the world, with nearly 90% market share. And Microsoft Azure is the second-most popular public cloud, with 20% market share as of February 2021.

In total, Microsoft's various businesses generated $153 billion in revenue over the trailing-12-months, meaning the company has plenty of cash to reinvest in its operations. That scale, paired with Microsoft's trusted brand name, gives the company a stronger competitive position than the vast majority of enterprises ever achieve.

So, for investors who prefer a more well-rounded business than Activision, Microsoft is a great option.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.