A couple of reasons why I like video game stocks via /r/wallstreetbets #stocks #wallstreetbets #investing


A couple of reasons why I like video game stocks

General:

  • Safe-haven stocks: Generally immune from supply-chain shortages, high oil prices, inflation, labor market challenges, and war
    • Products are delivered & created digitally
    • High oil prices would only encourage people to stay home & play
    • Video games is a relatively cheap form of entertainment. A lot of free-to-play games or just make a one-time purchase of under $100 and you can get a lot of hours or even days in return
    • Lot of people are working remotely & these are cool companies that people want to work for since they grew up playing these games
    • I know a lot of the video game companies are pulling sales from Russia, but they’re pretty irrelevant and in general I don’t see any issues in sales & product development timelines
  • Metaverse & high potential to be acquired: Lot of big tech players want to get their hands into their metaverse. ATVI already got acquired by Microsoft
  • Valuation: Valuations look reasonable relative to other tech stocks and generally trade under 25x EBITDA

ATVI:

  • Already getting acquired by Microsoft: Microsoft is buying ATVI for $95, but the stock is trading at $79 so there’s +20% upside. There’s a discount because some people think the deal won’t go through due to legal stuff, but I really don’t understand where they’re coming from when Microsoft just got a $16b deal for Nuance closed and you really can’t change my mind on this. The deal will go through and I haven’t see any good DD suggesting otherwise
  • Here’s my DD on why the ATVI deal will go through: My research on why ATVI is undervalued after Microsoft’s acquisition : stocks (reddit.com)

TTWO:

  • Already the top company in the metaverse: TTWO’s bread & butter is open-world role playing games such as Grand Theft Auto & Red Dead Redemption. In a matter of, they’re are already the largest metaverse company on Earth. So they’ll either be acquired because everyone in big tech knows that or they’ll stay independent and reel in cash on their own
  • Best upside among all video game stocks: Stock should be trading at over $190 – $210 if we apply the historical EV/EBITDA comp of 30x on their guidance and I’m sure this is going to go way higher as they release more details about GTA 6, which was already confirmed for active development & they integrate the Zynga acquisition. Trading at $150 right now shows +20% – +30 upside

EA:

  • My least favorite, but still an ok stock: Trades at $126 right now and I see this stock trading at over $140 or +10% upside from today’s price. I’m not that excited about it after they flopped Battlefield 2042, but it didn’t make a dent in their results & guidance because they’re the most diverse video game stock out their with all of the sports franchises, Apex Legends, and The Sims. The general themes apply where I’m pretty sure a big tech player or 2 will probably like to acquire EA, valuation isn’t too crazy, and I think they’ll be fine as long as the sports & Apex Legends doesn’t fuck up.

Submitted March 20, 2022 at 06:02PM by ricke813
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