The entertainment industry is expanding steadily as consumer demand and technological advancements increase, with streaming services becoming more popular and changing global preferences.
Therefore, it could be wise to own fundamentally strong entertainment stocks Playtika Holding Corp. (PLTK), Gravity Co., Ltd. (GRVY) and Electronic Arts Inc. (EA).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the entertainment industry.
The entertainment industry has evolved as a result of internet penetration, with streaming services and social media platforms replacing traditional forms of entertainment and emphasizing online content consumption.
According to Statista, total revenue in the entertainment market is anticipated to expand at a CAGR of 10.6% to reach $53.13 billion by 2027. This growth can be attributed to various factors, such as the increasing popularity of streaming platforms, the rise of virtual reality technology, and the growing demand for live events and experiences.
The toys and games industry is expected to grow at a CAGR of 9.9% until 2029.
Also, the global AI in gaming market is expected to grow at a CAGR of 32.2% until 2031. Moreover, investors’ interest in gaming stocks is evident from the VanEck Vectors Video Gaming and eSports ETF’s (ESPO) 13.2% returns over the past nine months.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Entertainment - Toys & Video Games stocks, starting with number three.
Stock #3: Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituach, Israel, PLTK is a mobile game developer. The company has a selection of casual and casino-themed games. It offers its games to end users via various web and mobile platforms, such as Apple, Facebook, Google, and other web and mobile platforms and direct-to-consumer platforms.
PLTK’s trailing-12-month ROTA of 9.58% is 522% higher than the industry average of 1.54%. Its trailing-12-month ROTC of 14.44% is 287% higher than the industry average of 3.73%.
For the fiscal nine months ended September 30, 2023, PLTK’s income from operations increased 11.2% from the year-ago value to $381.60 million. The company’s net income and net income per share attributable to common stockholders came in at $197.70 million and $0.54, respectively, rising 5.3% and 17.4% year-over-year. Its credit-adjusted EBITDA stood at $643.3 million, representing an increase of 6.8% year-over-year.
Analysts expect PLTK’s revenue to come in at $2.63 billion for the year ending December 2024, up 2.3% year-over-year. Its EPS is expected to grow 20.7% year-over-year to $0.87 for the same period. It is expected to surpass EPS in three of four trailing quarters. The stock has lost 3.5% intraday to close the last trading session at $7.28.
PLTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PLTK has an A grade for Value and a B for Stability and Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #4 out of 18 stocks. To see additional POWR Ratings for Growth, Sentiment and Momentum for PLTK, click here.
Stock #2: Gravity Co., Ltd. (GRVY)
Headquartered in Seoul, South Korea, GRVY develops and publishes online and mobile games in South Korea, Taiwan, Thailand and the U.S. The company provides massive multiplayer online role-playing games, including Ragnarok Online, Dragonica, Ragnarok Online II, and Ragnarok Prequel II.
GRVY’s trailing-12-month ROCE of 38.55% is 818.3% higher than the industry average of 4.20%. Its trailing-12-month ROTA of 25.32% is significantly higher than the industry average of 1.54%.
During the fourth quarter that ended December 31, 2023, GRVY’s total net revenue increased 72.1% year-over-year to $130.69 million. Its gross profit grew 37% from the prior year’s quarter to $43.26 million.
In addition, the company’s profit for the year grew 80.1% year-over-year to $21.50 million, and its earnings per share came in at $3.09, an increase of 80.2% from the previous year’s period.
Preliminary unaudited fourth-quarter financial results for 2023: tentative consolidated revenue for the fourth quarter of 2023 is KRW 146 billion ($110.19 million), with a consolidated operating profit of KRW 26 billion ($19.62 million).
Shares of GRVY has gained 25.3% over the past year to close the last trading session at $67.55.
It’s no surprise that GRVY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Growth, Sentiment and Quality. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated GRVY for Stability and Momentum. Get all GRVY ratings here.
Stock #1: Electronic Arts Inc. (EA)
EA is a global gaming company known for popular franchises like Battlefield, The Sims, and FIFA. They develop, market, and distribute games across various platforms, utilizing digital and retail channels for sales.
EA’s trailing-12-month net income margin of 14.09% is 268.7% higher than the 3.82% industry average. Its trailing-12-month ROTA of 7.92% is 414.6% higher than the 1.54% industry average.
For the fourth quarter ended December 31, 2023, EA’s net revenue and gross profit increased 3.4% and 7.8% year-over-year to $1.95 billion and $1.42 billion, respectively.
The company generated operating income and net income of $365 million and $290 million, up 26.3% and 42.2% from the prior year period, respectively. Moreover, its EPS increased 46.6% year-over-year to $1.07.
Street expects EA’s revenue to come in at $7.56 billion for the year ending March 2024, up 2.9% year-over-year. Its EPS is expected to grow 10.6% year-over-year to $7.16 for the same period. It is expected to surpass EPS in all four trailing quarters. Shares of EA have gained 26% over the past year to close the last trading session at $141.17.
EA has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
EA’s is ranked #2 in the same industry. It has an A grade for Quality and a B for Growth and Value. To see additional EA’s ratings for Stability, Sentiment and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EA shares were trading at $143.34 per share on Thursday afternoon, up $2.17 (+1.54%). Year-to-date, EA has gained 4.77%, versus a 6.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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