Playing video games has become a mainstream form of entertainment for millions of Americans. Players in the U.S. spent $56 billion on games in 2022, according to the NPD Group, and the figure is much larger when considering worldwide markets. Industry specialist Newzoo estimates that the global revenue from games will be $184 billion in 2023.
The industry has been growing for the last 50 years. It's an attractive market in which to find overlooked growth stocks that might be undervalued.
Its prospects even led Microsoft to spend $68 billion to keep one of the leading game companies, Activision Blizzard, all to itself. Microsoft's acquisition shows that owning shares of top game producers could be a rewarding move in the next decade.
What follows are three video game stocks that would make great buys before the end of 2023.
1. Take-Two Interactive
Among the top video game companies in the world, Take-Two Interactive (TTWO +0.54%) is one of the best to consider right now. Take-Two is home to popular franchises like Grand Theft Auto and NBA 2K, which sell millions of copies every year.
The stock returned 867% over the last 10 years, and there are a few important reasons to expect more upside over the next few years.
NASDAQ: TTWO
Key Data Points
Take-Two owns 44 proprietary gaming brands, and it selectively publishes games that are licensed, including sports series like NBA 2K and PGA Tour. When you have a game like Grand Theft V that has sold 190 million copies, you don't have to take chances on unproven concepts.
Take-Two has leaned into releasing sequels of its existing games, including Red Dead Redemption, that already have a large following. This aligns with management's goal to reduce risks while continuing to grow the value of the business for shareholders.
Take-Two's Rockstar Games studio just released the first official trailer for Grand Theft Auto VI (GTA VI), currently scheduled for release in calendar 2025. It garnered more than 146 million views on YouTube in the first 10 days.
Management is guiding for record adjusted revenue, or bookings, of nearly $8 billion in fiscal 2025, ending in March. It expects fiscal 2026 revenue to grow again. The stock has been moving higher this year but still trades at a forward price-to-sales ratio of 3.58 based on fiscal 2025 estimates. That leaves room for more upside leading up to the release of this blockbuster.
Over the long term, Take-Two has other titles with the potential for growth in sales, including previous hits like L.A. Noire, Borderlands, and future installments in the Red Dead Redemption series, which is made by the same studio that created Grand Theft Auto.
2. Playtika
The Israel-based mobile-game maker Playtika (PLTK 3.62%) is not as widely recognized as Take-Two but is an up-and-comer in the industry that investors should know about.
Mobile games make up about half of the industry's annual revenue, rivaling the spending on more-established gaming platforms like consoles and PCs. Playtika checks an important box for investors with its record of solid financial results. It generated a net profit of $285 million on revenue of $2.5 billion over the last year, and it's been growing those totals at double-digit annual rates in recent years, partly through acquisitions of other game studios.
NASDAQ: PLTK
Key Data Points
Mobile games can be a high-risk endeavor for an upstart studio, but Playtika's profitable growth since its founding in 2010 demonstrates its ability to make games and acquire other studios that generate growing profits for shareholders.
Most importantly, Playtika has shown the ability to monetize its free-to-play games with in-app purchases over many years, which is not easy to do in the mobile market. It released its first game, Slotomania, more than 10 years ago, and it remains the company's largest game based on revenue.
The market sell-off last year sent the stock well off its highs, and it is currently trading around 72% below its initial public offering in 2021. However, the shares offer incredible value right now, trading at a forward price-to-earnings ratio of just 9.3. This seems to deeply undervalue Playtika's record of growth and future opportunities in the mobile game market.
3. Roblox
The last rising star in this industry that investors should consider is Roblox (RBLX +0.07%). It's a popular platform where players can interact in 3D worlds and engage in experiences beyond games, such as virtual music concerts. Roblox experienced tremendous growth in recent years, but the stock's recent haircut could be a great buying opportunity.
NYSE: RBLX
Key Data Points
Over the last three years, daily active users have nearly doubled from 36 million to 70 million. The platform just launched on Sony's PlayStation console, which led to 15 million downloads in the first month. This bodes well for near-term growth in users and monetization opportunities to grow the value of the business.
Revenue has almost tripled since 2020 to $2.6 billion, with bookings up 20% year over year in the third quarter. Most of the company's revenue is generated from sales of virtual currency that players use to purchase premium content. The more the user base grows, the more creators want to make content for the platform, which keeps revenue growing.
The stock is trading well off its previous peak but is starting to move higher. Management said it would start to moderate its operating expenses and capital investments. This means more profitable growth that could lift the stock out of its recent slump.
