Last year, the video game market was worth about $221 billion and over the next seven years, the gaming industry will expand to an estimated $584 billion, according to Grand View Research.
Optimism for gaming stocks was especially high during the height of the pandemic, when many people were spending nearly all of their time at home. But it has since deflated as some investors have moved away from growth stocks over the past year.
But the recent pullback is opening up a buying opportunity for some companies in this industry, and there are a few of them that are flying under the radar after underperforming the broad market in the past year. Here's why Take-Two Interactive (TTWO 1.09%) and Electronic Arts (EA 0.64%) are worth buying right now and holding for the next decade.
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1. Take-Two Interactive
Take-Two has some of the most successful video game franchises, including Grand Theft Auto, the NBA 2K series, and the company's Red Dead series. The company recently reported its fiscal 2023 third-quarter results (ended Dec. 31, 2022), and investors were unsurprisingly disappointed with the fact management cut revenue guidance for the second time in a row.
But focusing only on that fact would cause investors to miss the long-term opportunity Take-Two has with its massive video game franchises. Take-Two CEO Strauss Zelnick said on the earnings call that it currently has 11 franchises that have sold over 5 million units in an individual release and more than 65 that have sold over 2 million units for an individual release.
And one of the best examples of this strength comes from the company's Grand Theft Auto V title, which to date has sold 175 million units since its launch back in 2013.
And the company isn't showing any signs of slowing down its gaming development. Take-Two currently has about 87 games in its development pipeline that are slated for release between now and 2025.
But investors also don't have to sit around waiting for these new titles to be released to see growth from the company. Take-Two's sales rose 56% in the third quarter to $1.4 billion. These sales point to the company's current strength in the gaming market, and patient investors could see even more growth from the company when new iterations of its popular titles are released.
2. Electronic Arts
Investors were looking for the exits after EA's recent quarter, in which the company's net bookings fell 1% and management announced that new mobile versions of Battlefield and Apex Legends were being scrapped for the time being.
The company's stock fell 10% following its own fiscal 2023 third-quarter earnings report (also for the period ended Dec. 31), but long-term investors still have a lot to like about this stock.
First, the company has some amazingly successful titles, including The Sims, Battlefield, Apex Legends, and the company's ultra-successful FIFA franchise. EA CEO Andrew Wilson said on the company's earnings call that FIFA 23 "is pacing to be the biggest title in franchise history," and unit sales of the new title were up 50% year over year in North America.
The mobile version of the franchise, FIFA Mobile, is also performing very well, and management said on the call that engagement for the title was "up triple digits" in the quarter.
In addition to the success it has already had with current titles, EA's video game pipeline looks very strong. The company will release the much-anticipated Star Wars: Survivor in April and then release a new NCAA football game in the summer of 2024.
Not only will these titles likely generate lots of demand among users, but EA's future success will also be helped by the fact the company has 650 million users in its online player network -- an increase of 20% from the year-ago quarter.
And finally, long-term investors may want to pay attention to the fact EA stock is relatively inexpensive right now. The company's forward price-to-earnings ratio of 17 is near its two-year low.
Be patient with these gaming stocks
Gaming stocks can serve as a nice addition to your portfolio, but investors should keep in mind they may remain volatile in the short term. Investors are still trying to determine where the economy is headed and are still concerned about inflation pressures.
And while those are real concerns, long-term investors know that buying and holding growth stocks, especially industry-leading ones like Take-Two and EA, can be a great way to generate market-beating returns.
