Which Video Game Stock Is A Better Buy?
Despite the increasing availability of outdoor entertainment options, offering increasingly engaging content and advanced gaming software, graphics and consoles, the gaming industry is expected to continue to grow. Therefore, we believe that leading players in this space, Roblox (RBLX) and Activision Blizzard (ATVI), should benefit. But which of these titles is the best buy now? Read on to find out.
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Roblox Corporation (RBLX) and Activision Blizzard, Inc. (ATVI) are two established players in the video game industry. California based in San Mateo, CaliforniaRBLX develops and operates an online entertainment platform that delivers applications and solutions, enabling developers and creators around the world to create, publish and operate 3D experiences and other content. In comparison, ATVI in Santa Monica, California, develops and publishes interactive entertainment content and services on various gaming platforms, through subscription sales, full games and games, as well as through the licensing of software to third party or related companies which distribute Activision and Blizzard products.
The launch of immersive and realistic games, esports competitions on various platforms, and efficient gaming consoles have helped the video game industry generate significant revenue and expand its monthly active user base since the start of the year. COVID-19 pandemic, with limited outdoor entertainment and recreation. activities acting as a catalyst. As the ongoing vaccination campaign and the availability of various outdoor activities were expected to slow the growth of the industry this year, the efforts of video game makers to deliver compelling content, powerful graphics, and advanced software have helped industry to generate $ 4.39 billion in sales in October 2021, up 16% compared to the same period of the previous year.
Also a growing interest in metaverse games further improves the industry’s long-term growth prospects. Investor optimism in this space is evident in the Wedbush ETFMG Video Game Tech ETF (GAMR) Gains of 4.7% over the past month, compared to the SPDR S&P 500 Trust ETF (TO SPY) 3.6% yield. The global video game market is expected to grow at a 9.7% CAGR to 225.10 billion dollars by 2025. Thus, RBLX and ATVI should benefit from it.
But while ATVI shares have fallen 36.9% in the past six months, RBLX has jumped 39.2%. RBLX is a clear winner with gains of 47.9% over ATVI’s negative performance returns last month. But which of these titles is the best choice now? Let us know.
Click here to view our Video Game Industry Report for 2021
On August 16, 2021, RBLX acquired Guilded, Inc., a privately held company focused on creating a platform to connect gaming communities. The Guilded team has built a powerful platform for connecting gaming communities which includes tools and features like multilevel voice chat, video chat, built-in calendars, scheduling tools. It also launched its bot API to simplify bot development. Both companies are eager to provide the best experience for their communities.
On October 28, ATVI announced the acquisition of Barcelona-based mobile game developer Digital Legends. He joins ATVI’s growing list of independent studio teams, supporting the development of an unannounced Call of Duty mobile title. Digital Legends’ expertise in high-quality mobile titles for mobile is expected to help ATVI’s mobile talent pool grow significantly.
Recent financial results
For the fiscal third quarter, ended September 30, 2021, RBLX revenue increased 102.2% year-over-year to $ 509.34 million. However, the company’s operating loss amounted to $ 77.45 million, up 50.3% from the previous year period. Its net loss amounted to $ 77.19 million for the quarter, an increase of 54.3% over the same period a year earlier. Its loss per share fell 50% year-on-year to $ 0.13. The company had $ 1.93 billion in cash and cash equivalents as of September 30, 2021.
For its fiscal third quarter, ended September 30, 2021, ATVI’s total net revenues increased 5.9% year-on-year to $ 2.07 billion. The company’s non-GAAP operating income was $ 893 million, up 4.3% from the prior year period. While its non-GAAP net income increased 2.3% year-over-year to $ 699 million, its non-GAAP EPS increased 1.1% to $ 0.89. The company had $ 9.72 billion in cash and cash equivalents as of September 30, 2021.
Past and expected financial performance
RBLX’s revenue has grown 115% over the past year. Analysts expect RBLX’s EPS to remain negative over the current year and into the next year. However, its revenue is expected to grow 195.7% year-over-year in the current year and 20.1% next year. The stock’s EPS is expected to grow at a rate of 1.1% per year over the next five years.
In comparison, ATVI’s revenues have increased by 18.2% over the past year. ATVI’s EPS is expected to grow 9.8% year-on-year in the current year and 0.3% next year. The stock’s revenue is expected to grow 3.7% year-over-year in the current year and 3.5% next year. Analysts expect the stock’s EPS to grow 13.3% annually over the next five years.
In terms of non-GAAP P / E, ATVI is currently trading at 16.02x, compared to 137.68x negative for RBLX. And in terms of EV / forward sales, ATVI’s 4.77x compares to RBLX’s 23.50x.
ATVI’s last 12 months revenue is almost 5.5 times that of RBLX. And ATVI is more profitable, with a rate of 37.6% EBITDA margin compared to the negative value of RBLX.
In addition, ATVI’s ROE, ROA and ROTC of 16.9%, 9% and 10.6% respectively compare to negative returns of RBLX.
While ATVI has an overall rating of B which translates to Buying in our property POWR odds system, RBLX has an overall D rating, equivalent to Sell. POWR scores are calculated by considering 118 distinct factors, each weighted to an optimal degree.
In terms of Quality, ATVI obtained a B grade, consistent with its profitability ratios higher than those of the industry. ATVI’s 72.7% gross profit margin over the past 12 months is 40.6% higher than the industry average of 51.7%. By comparison, RBLX’s C rating for quality is in line with its lower profit margins than the industry. It has a gross profit margin of 20.8% over the past 12 months, which is 59.7% lower than the industry average of 51.7%.
ATVI has a B rating for value, which is in line with its lower valuation ratios than the industry. ATVI has a futures price / book of 2.68x, which is 0.4% lower than the industry average of 2.69x. RBLX’s D rating for value reflects its overvaluation. RBLX’s 128.07x futures price / delivery is 4661.8% above the industry average 2.69x.
Of the 23 C-rated stocks Entertainment – Toys and Video Games Industry, RBLX is ranked No.19, while ATVI is ranked No.5.
Beyond what we have stated above, our POWR rating system also rated ATVI and RBLX for stability, growth, momentum and sentiment. Get all RBLX ratings here. Also, Click here to view additional POWR ratings for ATVI.
Given the growing demand for video games, ATVI and RBLX are expected to benefit in the short term. However, its higher profitability, lower valuation, and favorable analyst sentiment make ATVI a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the top rated stocks in the Entertainment – Toys and Video Games sector.
Click here to view our Video Game Industry Report for 2021
RBLX shares rose $ 2.77 (+ 2.23%) in trading before market on Friday. Year-to-date, RBLX has gained 82.19%, compared to a 24.70% increase in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market.
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