The value of the global gaming industry topped $180 billion in 2021, inclusive of the three major segments: mobile, console, and PC. Smartphones and tablets have catapulted the mobile gaming segment to the top spot, exceeding the value of both the console and PC markets combined.
That trend is likely to continue as adoption of the 5G network expands across the globe, providing a more powerful gaming experience for users.
Since the stock market is having a turbulent 2022 with the NASDAQ 100 technology index down about 10% year to date, there's an opportunity to buy leading gaming stocks at a steep discount to their all-time highs. In fact, Wall Street analysts predict major upside for these three in particular.
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1. Sea Limited: Implied upside of 72%
Sea Limited (SE 0.05%) is a Singapore-based powerhouse of the digital economy with its reach expanding far beyond gaming. It has a market-leading e-commerce platform called Shopee, and its fintech segment, SeaMoney, is making strides in the payments industry.
But Sea Limited's gaming business is part of its digital entertainment segment, and it's led by Garena, the studio responsible for the Free Fire battle royale mobile game. It's a world leader in more ways than one, topping the charts as the highest-grossing title in both Apple's App Store and Alphabet's Play Store across multiple regions. Since launching in 2017, it has amassed over one billion downloads and continues to set records for quarterly active users.
The industry in general boomed thanks to the pandemic with people spending more time at home engaging with their favorite games. Those tailwinds are set to subside as Sea Limited expects Garena's gross bookings to contract 35% in 2022 to approximately $3 billion. The weakness comes as Free Fire is the subject of government scrutiny in India, making the game's future uncertain in the country.
But that's no reason to disregard the stock, because e-commerce is rapidly driving the company forward while the gaming segment takes a breather. The e-commerce segment generated $5.1 billion of revenue in 2021, representing 136% year-over-year growth, and the company estimates a further 75% growth to $9.0 billion in 2022.
With Sea Limited stock, investors get a market-leading gaming business attached to a fast-growing e-commerce platform. Banking giant Barclays thinks the stock could soar 72% from current levels to $201 per share.
Image source: Getty Images.
2. Unity Software: Implied upside of 83%
Unity Software (U 3.47%) isn't a game developer itself but rather the leading tool for making games, serving 61% of developers and creators. Last year, over half of all games across all platforms were made with the help of Unity, but that's just the tip of the iceberg for this company.
Unity's software offerings also serve a variety of purposes beyond gaming, including filmmaking, industrial design, and both augmented and virtual reality. Content created with Unity reached over 3.9 billion people every single month of 2021, which represents almost half the planet.
But for game makers, the company's Unity Pro suite is the obvious choice for a few reasons. Not only does it offer low-code tools for the development process, but it also supports the game once it's live in the market. It provides plugins to help generate revenue through advertising and in-app purchases, plus a data analytics suite to fine-tune the user experience.
Unity is experiencing strong growth in revenue, logging an increase of 44% in 2021 to $1.1 billion. This year, management expects a further jump of approximately 35% to $1.5 billion. The company is still losing money, but it's working toward building scale and has enormous, potentially multi-trillion dollar opportunities ahead of it in new industries like the metaverse.
So it's no surprise Credit Suisse sees a lot of potential in Unity stock, giving it a $180 price target, which represents an 83% gain from its price as of this writing.
Image source: Getty Images.
3. Skillz: Implied upside of 195%
Skillz (SKLZ -2.09%) takes yet another approach to the gaming industry. It's a platform technology company focused on facilitating a brand new way for game makers to generate revenue, which solves a key problem: Only 2% of developers actually deliver a financially successful game to the market, leaving the other 98% fighting for scraps.
But with Skillz, that 98% can earn income by allowing users to enter paid tournaments with real cash prizes. Players buy in for a fee which builds a prize pool paid out to the winners, while Skillz and the game developer take a cut of the action. It's staggeringly popular with over 30 million gamers now on the platform.
The Skillz platform mainly hosts generic games, devoid of big names, because those brands typically don't need an alternative revenue source like this. But that's all about to change as Skillz secured a deal last year with the NFL to host a developer competition with the aim of delivering a mobile-based football game. It's in the final stages right now, and it could catapult the company into the mainstream.
It's already working with the UFC joining the fold just last week.
Skillz grew revenue 67% in 2021 to $384 million, but its net losses remain a concern, so much so the company plans to restructure its marketing expenses during 2022 in order to improve the bottom line. It will sacrifice revenue growth in the short term to achieve that with the $400 million expected this year being only a marginal improvement over 2021.
But Skillz is onto something special, reinforced by giants like the NFL and the UFC. Wall Street bank Citigroup is betting the company can deliver, placing a $9 price target on Skillz stock, which implies it could soar 195% from where it trades today.
