The entertainment industry is booming, with mobile gaming, e-sports, and online gambling driving success. Despite economic challenges, the gaming industry, offering enjoyment and social connections, is flourishing and set for further growth.
Given this backdrop, let us consider the prospects of Roblox Corporation (RBLX) and Electronic Arts Inc. (EA). Before diving deeper into the fundamentals of these stocks, let’s discuss why the entertainment industry is well-positioned for growth.
The gaming industry thrived during the pandemic, with more people stuck indoors, leading to a surge in first-time gamers. This boosted console and video game sales, transforming gaming from a casual pastime to a more serious and sustained interest.
Statista predicts that video game users will reach 3.1 billion by 2027, with a user penetration of 39%, resulting in a market volume of $467 billion. The toys and games market revenue is also expected to grow at an annual rate of 2.6% over the next five years.
On top of it, eSports, mobile, and online gaming, along with rising internet access, faster 5G connectivity, and emerging tech like Artificial Intelligence (AI), Augmented Reality (AR), and Virtual Reality (VR), are driving the gaming industry’s growth.
The mobile gaming market is set to reach $300.47 billion by 2028, with a 16.2% CAGR. Moreover, the global gaming market is projected to hit $665.77 billion by 2030, growing at a 13.1% CAGR. Investor interest is evident with the VanEck Vectors Gaming ETF (BJK) delivering an 18.2% return over the past year.
Considering these conducive trends, let’s examine the fundamentals of the two stocks from the Entertainment – Toys & Video Games industry, starting with the one ranked lower from the investment point of view.
Stock to Avoid:
Roblox Corporation (RBLX)
RBLX is an online entertainment platform company providing tools like Roblox Studio for 3D content creation, Roblox Client for user exploration, and Roblox Education for learning experiences. It serves a global customer base and offers a collaborative human co-experience platform.
In terms of the trailing-12-month gross profit margin, RBLX’s 14.08% is 71% lower than the 48.63% industry average. Likewise, its 0.46x trailing-12-month asset turnover ratio is 4.2% lower than the industry average of 0.48x.
For the second quarter that ended June 30, 2023, RBLX’s revenue came in at $680.77 million. Its loss from operations widened 84.4% over the prior year’s quarter to $313.99 million. The company’s total cost and expenses increased 30.6% year-over-year to $994.76 million.
For the same quarter, its net loss and net loss per share attributable to common stockholders came in at $282.78 million and $0.46, representing a decrease of 60.3% and 53.3% year-over-year, respectively. Furthermore, as of June 30, 2023, RBLX’s total liabilities came in at $5.44 billion, compared to $5.07 billion as of December 31, 2022.
For the quarter ended September 30, 2023, RBLX’s EPS is expected to remain negative. It failed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 19.4% to close the last trading session at $34.90.
RBLX’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Quality and a D for Growth, Value, and Stability. It is ranked last out of 18 stocks in the Entertainment – Toys & Video Games industry. To access RBLX’s grades for Momentum and Sentiment, click here.
Stock to Buy:
Electronic Arts Inc. (EA)
EA develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It develops and publishes games and services across various genres, such as sports, racing, first-person shooter, action, role-playing, and simulation, and licenses games from others.
On November 3, 2023, EA announced the launch of EA SPORTS WRC, the official FIA World Rally Championship game for PlayStation 5, Xbox Series X|S, and PC.
It includes the official WRC license, 50 crews, 2023 locations, and a new Dynamic Handling System for realistic play. The game offers cross-platform competition, historical challenges, and car customization, which might attract significant customer attention.
On October 27, 2023, EA and UFC launched EA SPORTS UFC 5 on PlayStation 5 and Xbox Series X|S, powered by the Frostbite Engine. It boasts lifelike fighters, realistic damage, smooth 60 fps performance, cinematic K.O. replays, and seamless submissions. The game offers an online career mode, doctor’s checks, new strikes, and more.
UFC’s SVP Tracey Bleczinski predicted that UFC 5, with its advanced features and heightened realism, sets a new standard in combat sports gaming, delivering a deeper and more engaging UFC experience, making it the best version of the game to date.
In terms of the trailing-12-month net income margin, EA’s 13.08% is 279.1% higher than the 3.45% industry average. Likewise, its 7.56% trailing-12-month Return on Total Assets is 416.2% higher than the industry average of 1.46%. Furthermore, the stock’s 26.59% trailing-12-month levered FCF margin is 248.1% higher than the industry average of 7.64%.
EA’s total net revenues for the fiscal second quarter ended September 30, 2023, rose 0.5% year-over-year to $1.91 billion. Its gross profit rose 1.1% year-over-year to $1.46 billion. The company’s net cash provided by operating activities came in at $122 million, compared to net cash used in operating activities of $112 million in the year-ago quarter.
Its net income increased 33.4% year-over-year to $399 million. Also, its EPS came in at $1.47, representing an increase of 37.4% year-over-year.
Analysts expect EA’s EPS for the December 31, 2023 quarter to increase 16.2% year-over-year to $2.91. Likewise, its revenue for the same quarter is expected to increase 1.8% year-over-year to $2.38 billion. Over the past nine months, the stock has gained 13.8% to close the last trading session at $129.59.
It’s no surprise that EA has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Sentiment and a B for Growth and Quality. It is ranked first in the Entertainment – Toys & Video Games industry. Beyond what we stated above, we also have given EA grades for Value, Momentum, and Stability. Get all EA ratings here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
EA shares were trading at $128.93 per share on Monday afternoon, down $0.66 (-0.51%). Year-to-date, EA has gained 6.03%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More…