Top 10 Video Game Stocks In 2023

Top 10 Video Game Stocks In 2023

UPDATED May 23, 2024

Many might be surprised to learn how large the video game industry is. What was once called a "passing fad" by an executive of toymaker Milton Bradley Co. in the 1970s has now become one of the largest entertainment industries by revenue - greater than Hollywood and the entire music industry COMBINED. So there is plenty of opportunity with video games raking in record earnings and video game publishers being acquired for big bucks.

The gaming industry is going through a period of consolidation. This means that smaller franchises are being bought out by bigger companies. This can make the industry more stable, but it could also reduce the amount of creativity and innovation.

We can divide gaming companies as: single title, portfolio companies, hardware, cloud. As companies move from a single title to diversified game portfolios, they become more profitable, less risky, but may reduce game quality.

The industry is growing at 9% backed by the rise in lean console gaming, faster 5G internet, smartphone adoption, and other hardware. With new technology like Unity, Godot, and Unreal Engine, it’s becoming cheaper to create games, so small passionate developers could become serious competitors to larger companies. Having this in mind, other ways to invest in the industry include online-stores, hardware and peripherals, and cloud capacity.

People usually play games on PCs, consoles, or mobile devices. PCs are the most popular choice, but consoles have been growing in popularity. From 2015 to 2022, console sales increased from US$66 billion to US$108 billion. It’s estimated that by 2026, console sales will reach US$130 billion.

Investors in gaming are inherently assuming that market share will become more consolidated, people will spend more time playing games, more people will switch from traditional media to gaming, and more parts of the world will start using higher-margin products.

10 companies

Develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally.

Why?

Peace of mind for parents and casual gamers.

  • Nintendo is a multinational video game company based in Japan, known for its iconic video game franchises such as Super Mario Bros., The Legend of Zelda, and Pokémon.
  • Nintendo primarily sells console systems and games. The newest model of its flagship console - The Nintendo Switch OLED, comes with significant UX improvements and represents a move from an early generation product to a high quality version.
  • In total, Nintendo’s Switch hardware has sold 122.6 million units, while software has sold close to 1 billion copies. With the Americas, Europe and Japan being the leading markets, while annual paying users have grown to 112 million.
  • Its top-selling titles, along with total copies sold include: Mario Kart 8 Deluxe (52 million), Animal Crossing: New Horizons (41.6 million), Super Smash Bros Ultimate (30.44 million), The Legend of Zelda: Breath of the Wild (29 million), Pokémon Sword/Shield (25.68 million).
  • Nintendo has its own marketplace, the eShop, and has expanded into mobile games with Super Mario Run and Animal Crossing: Pocket Camp.
  • As a company, Nintendo maintains a profitable model. The fundamentals show a stable 3% dividend yield and a forward PE of 14x, with a growing profit margin around 30%. Management has also set a sales outlook for FY 2023 to 1.6 billion JPY.
  • Nintendo’s family friendly products make them attractive to investors looking for a leader within its own segment.
  • While Nintendo is locked in the ‘Console War’ with Sony’s Playstation and Microsoft’s Xbox, it does have something of an advantage. Nintendo’s Switch console isn’t a perfect substitute for a Playstation of Xbox. While it’s often a ‘one-or-the-other’ decision when it comes to Playstation or Xbox, the Switch’s handheld nature and unique intellectual property offering means it still offers a meaningful value proposition to owners of the other two consoles. Something which can’t necessarily be said for the Playstation or Xbox which are static consoles with far less recognisable IP.
  • Looking at the new console improvements, we can see that Nintendo is taking its products in an innovative direction and has the potential to perfect them over a few iterations.

Rewards

  • Price-To-Earnings ratio (19.6x) is below the Entertainment industry average (25.3x)

  • Earnings are forecast to grow 0.29% per year

  • Earnings grew by 13.4% over the past year

Risks

No risks detected for 7974 from our risks checks.

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Plans, develops, manufactures, sells, and distributes home video games, online games, mobile games, and arcade games in Japan and internationally.

Why?

A recognized gaming brand, centered in Japan.

  • Capcom is a Japanese video game company known for creating some of the most iconic franchises in the gaming industry. Some of their most popular games include Street Fighter, Resident Evil, and Devil May Cry. These games have brought a large and loyal fan base, propelling the company’s brand.
  • Even if you haven’t played one of their franchises, Capcom is a recognisable name from its days as an arcade machine manufacturer.
  • The highest selling titles (with number of copies) include: Monster Hunter: World (18.6 million), Monster Hunter Rise (11.7 million), Resident Evil 7 biohazard (11.7 million), Resident Evil 2 (11.2 million). Another recent popular title is Resident Evil Village, which was released in 2021 and has sold 7.4 million copies to date.
  • Capcom has sold 32,600 total units in Q3 2022, and forecasts to sell around 40k units in Q3 2023. Management seems to be optimistic on the future of the company as it keeps diversifying its games and expanding to western markets.
  • The latest addition, Monster Hunter Rise: Sunbreak released in 2022 and is receiving positive user reviews. Unfortunately, we can notice a prevailing bug about the corruption of save files, showing a lack of commitment from management in following up.
  • Capcom produces renowned titles and new additions, giving investors an entry into a non-western company with a recognized brand name.

Rewards

  • Earnings are forecast to grow 9.13% per year

  • Earnings grew by 18.1% over the past year

Risks

No risks detected for 9697 from our risks checks.

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Designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets in Japan, the United States, Europe, China, the Asia-Pacific, and internationally.

Why?

The company behind the world’s leading gaming console.

  • Sony is a multinational conglomerate corporation based in Japan, known for its presence in various industries such as electronics, entertainment, and gaming. Sony is a leader in entertainment, with 30% of sales in gaming and 70% from entertainment, music, pictures, etc. Key products include the PlayStation, TVs, and smartphones.
  • The company’s gaming division, Sony Interactive Entertainment (SIE), is responsible for creating and publishing some of the most popular video game franchises in the industry. Notable titles include The Last of Us, Horizon Zero Dawn, Gran Turismo, Uncharted, and God of War series.
  • For gamers, Sony’s PlayStation is the go-to gaming console, holding 85% of the global market share and targeted at teenagers and adults. The PlayStation 5 only became available in retail shops after 2 years of shortage and direct to consumer sales. A testament to the popularity of the console.
  • Sony has earned approximately US$81 billion in sales over the past 12 months, and boasts a 9% profit margin, giving it a solid 16.2x PE ratio. This suggests strong fundamentals and potential for fair pricing.
  • Investors may like Sony for its market share, diversified portfolio, and geographical exposure.
  • Sony is headquartered in Japan and its business culture is influenced by its domestic environment.

Rewards

  • Trading at 6.2% below our estimate of its fair value

  • Earnings are forecast to grow 5.02% per year

  • Earnings grew by 3.6% over the past year

Risks

No risks detected for 6758 from our risks checks.

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Develops and publishes PC, console, mobile, VR, and board games for the games market worldwide.

Why EMBRAC B?

Applied portfolio management in the gaming industry.

  • Embracer Group is a Swedish video game holding company, formerly known as THQ Nordic AB, that specializes in acquiring and managing game development studios.
  • has more than 223 games in its project pipeline, 25 of these are AAA titles slated for release by March 2026, complemented by 815 owned IPs.
  • These include titles such as Saints Row, Goat Simulator, Dead Island, Darksiders, Metro, MX vs ATV, Kingdoms of Amalur, Satisfactory, Insurgency, World War Z, Borderlands, etc.
  • It seems that Embracer is playing the numbers game. Betting on surges in popularity of a few titles, which can make up for the costs of the full portfolio.
  • Embracer is also growing via acquisitions and adding new developers. This has led to the group containing 118 internal studios, across 10 operative groups.
  • Recent acquisitions include: Asmodee, Saber Interactive, Gearbox Software, Dark Horse Media, Plaion, Coffee Stain Holding, etc.
  • Embracer invests in mobile games – now constituting 20% of its portfolio – with 290 million monthly active users. This is boosted by the acquisitions of Easybrain and CrazyLabs, adding SEK 4,866 million in sales.
  • The company has a strong presence in the PC gaming market, but has also shown interest in expanding into the console gaming space. Embracer Group has also expressed interest in developing more games for the emerging virtual reality market.
  • The company is in a high growth phase, partly driven by acquisitions, which can lead to oversights on quality and difficulties building lasting franchises. Acquisitions need time to integrate, and if prospects dry up, management may have dampened growth and a business that needs restructuring.

Rewards

  • Trading at 58.4% below our estimate of its fair value

  • Earnings are forecast to grow 105.36% per year

Risks

  • Shareholders have been diluted in the past year

  • Volatile share price over the past 3 months

View all Risks and Rewards

Develops, publishes, and markets interactive entertainment solutions for consumers worldwide.

Why TTWO?

Pure play game developer holding some of the world’s most renowned titles.

  • Operating under the Rockstar Games, 2K, Private Division and T2 Mobile Games brands, the company’s portfolio is composed of iconic titles such as Grand Theft Auto, Red Dead Redemption, Max Payne, Civilization and Midnight Club, Mafia, and more.
  • Take-Two is currently focused on the development of GTA 6, an upcoming title that is speculated to be released in around two years. The company’s largest revenue contributors are NBA® 2K23 and NBA 2K22, Grand Theft Auto® Online and GTA V.
  • Take-Two’s biggest success has been in creating a ‘live service’ game in GTA Online. Live service games stray away from the traditional game release model where a game is published and support dwindles thereafter. Live service games are a perpetual piece of software akin to the SaaS model wherein support continues over a number of years to try and keep players engaged and spending money through microtransactions. GTA Online has been so successful at this that GTA 5 has brought in over US$7.7 Billion in revenue since its release in 2013, far exceeding the US$265 Million it cost to make the game.
  • To further diversify its product portfolio, Take-Two acquired mobile game developer Zynga in an all share deal worth $12.7 billion. Zynga is renowned for its hit titles such as Words With Friends, FarmVille 2 and Zynga Poker, among others.
  • The success of Take-Two’s stock is ultimately dependent on the release of GTA 6, an event that investors are closely monitoring.
  • The company has also forged partnerships with key players in the industry, such as Microsoft and Sony, to deliver its titles on the Xbox and Playstation platforms. With a broad portfolio of popular titles and a focus on developing innovative new products, Take-Two is well-positioned to continue its success in the video game industry.

Rewards

  • Trading at 35.2% below our estimate of its fair value

  • Earnings are forecast to grow 97.85% per year

Risks

No risks detected for TTWO from our risks checks.

View all Risks and Rewards

Develops and supports software, services, devices and solutions worldwide.

Why MSFT?

Expanding on all fronts in gaming with acquisitions, Xbox, cloud, and AAA titles.

  • While not its primary business, Microsoft is increasingly involved in the gaming world via its Xbox and library of games. Gaming is part of Microsoft’s personal computing segment, which along with its operating system, makes up about 27% of the revenues.
  • The game-changing factor for Microsoft has been its usage of its Azure cloud infrastructure to bolster Xbox products, giving the company an advantage over competitors who only develop games.
  • The Xbox division comprises the Xbox One console and the Xbox Live service, a subscription-based online gaming network.
  • Microsoft’s acquisition of Bethesda in 2021 has further strengthened its gaming portfolio, as Bethesda is the creator of popular titles such as The Elder Scrolls, Fallout, and Doom.
  • The company is also attempting to acquire Activision-Blizzard (Nasdaq:ATVI), which has been approved by shareholders, but is currently being obstructed by the FTC (Federal Trade Commission). ATVI has some of the most iconic titles in gaming, such as World of Warcraft, Overwatch, Call of Duty, and Diablo.
  • Some of Microsoft’s top titles include Minecraft - the best selling game of all time, Age of Empires, Halo, Gears of War and Forza.
  • Microsoft has also been able to capitalize on its gaming business through the acquisition of popular game studios, such as Mojang, Rare, and The Coalition.
  • For investors looking to get into the gaming business, Microsoft’s game titles, cloud infrastructure and consoles could be a good entry point.

Rewards

  • Trading at 1.8% below our estimate of its fair value

  • Earnings are forecast to grow 12.67% per year

  • Earnings grew by 24.9% over the past year

Risks

  • Significant insider selling over the past 3 months

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Together its subsidiaries, engages in the development, publishing, and digital distribution of video games for personal computers and video game consoles in Poland.

Why CDR?

The company behind the Witcher and Cyberpunk. Competing with Steam and Epic Games with their own digital store.

  • CD Projekt is a Polish video game company known for creating critically acclaimed and commercially successful franchises.
  • CD Projekt is renowned for their mastery of storytelling, as seen in their iconic titles The Witcher and Cyberpunk 2077.
  • As a major player in the digital distribution market, they own the online store GOG.com, which serves as a primary outlet for classic and modern titles, and is a significant contributor to the indie gaming scene. The biggest appeal of CD Projekt’s marketplace is that the games are "DRM-Free" which means that the games can be played even without an internet connection - something that isn’t always possible with games bought on other marketplaces. The online store gives investors the rare chance to have a stake as a minor competitor to Steam and the Epic Games stores.
  • CD Projekt is a Polish company, headquartered in Warsaw, giving investors the opportunity to gain exposure to the country’s market and a different cultural perspective.
  • The main risk with the company is that the Witcher may be approaching the ending stages of its lifecycle while management seems to be attempting to stretch the IP over future iterations, multiplayer modes, mobile and supplementary media & games.
  • The company has announced a 3rd IP named Hadar, which is in the early stages of creative exploration and may be many years before a game is developed from it.
  • Overall, CD Projekt is considered one of the best video game publishers due to its successful track record of creating engaging and successful game franchises that focus on player choice and storytelling, and strong commitment to addressing technical issues and improving gameplay experiences

Rewards

  • Earnings are forecast to grow 23.6% per year

  • Earnings grew by 38.9% over the past year

Risks

No risks detected for CDR from our risks checks.

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Develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide.

Why EA?

Growth via acquisitions with high-return titles.

  • EA Games revolves around the development, publishing, and distribution of video games. The company works with both independent and internal developers to produce games across all major gaming platforms.
  • EA’s portfolio includes some of the most widely known sports games, such as FIFA, Madden NFL, and NHL. In addition, EA Games has also created many popular action/adventure games, such as Need for Speed, Battlefield, and Mass Effect. Finally, EA is also known for its popular role-playing games, such as The Sims and Dragon Age.
  • The company sustains its revenue levels by iterating successful titles, and focuses on growth by developing new AAA titles and acquiring promising young game studios.
  • The company has a history of sound fundamentals, however some of their titles may be experiencing an end of life, and EA needs to find exciting titles to revitalize the player base.
  • EA also has a bad reputation for the pricing practices it utilizes, and the quality of shipped games at launch, which may be a signal for smaller competitors to move in.
  • The advantage of a large company, like EA, is that it can scan and acquire rising titles into their portfolio. This is safer than ground-up development because the company can use its access to financing to iterate on proven titles.

Rewards

  • Trading at 32.1% below our estimate of its fair value

  • Earnings are forecast to grow 7.4% per year

  • Earnings grew by 58.7% over the past year

Risks

No risks detected for EA from our risks checks.

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Operates a platform that provides real-time 3D content and experiences.

Why U?

A 2D/3D platform that is decreasing the barriers to entry for small and medium game developers.

  • Unity Technologies is an American video game software development company, known for creating the Unity game engine, which is widely used in the video game industry for its versatility and ease of use.
  • Unity is a platform for 2D and 3D development which is free to use and charges as projects scale up, helping to decrease the barriers to entry for small and medium game developers and encourage new developers to learn, create and get involved in game development.
  • In 2021, 61% of 250k surveyed developers used Unity. This shows that the engine is among the market leaders in the field, but also limits the prospects for extra market share capture since growth must rely on the broad industry expansion.
  • Unity is also pitching for horizontal expansion in architecture, media & animation, etc. The company has already been growing its presence in the augmented reality (AR) and virtual reality (VR) markets, with the use of its technology in popular AR/VR games and experiences.
  • The company may experience margin pressures as development engines become more accessible. This comes from rival engines which include Unreal Engine, Godot, Amazon Lumberyard, GDevelop.
  • Investors may want to watch for larger insider buys as a signal that management aligns with their success.
  • As game development becomes easier, the barriers to entry may drop, and we can see small team developers taking more market share. This is a possible opportunity for growth at the expense of large companies, who have difficulties taking risks on new titles.

Rewards

  • Trading at 44.3% below our estimate of its fair value

Risks

  • Shareholders have been diluted in the past year

  • Significant insider selling over the past 3 months

  • Currently unprofitable and not forecast to become profitable over the next 3 years

View all Risks and Rewards

Develops and publishes strategy and management games on PC and consoles in North and Latin America, Europe, the Middle East, Africa, and the Asia Pacific.

Why PDX?

A niche gaming company, catering to grand strategy enthusiasts.

  • Paradox is a Swedish company that caters to adults with an affinity for strategy, complex systems, and optimization. This has attracted a dedicated following, which are likely to be higher earners and can afford the higher prices.
  • Paradox’s games include Stellaris, Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines, etc.
  • The latest releases include Victoria 3 and Crusader Kings III. Victoria 3 has mixed reviews on steam, which is reflected in the decreasing search volume on Google Trends, while Crusader Kings III has very positive reviews and the title has retained the engagement of the player base and led to better sales of post-release downloadable content (DLC).
  • Paradox Interactive is also known for its strong commitment to modding, with many of its games featuring robust modding tools and communities. This is quite different to the approach most game developers take, but could be seen as a strong retention tool for its games. If the community is able to create new content and experiences for each other, players will stick around longer and be more likely to engage with future releases as the content per dollar is far greater than offerings from non-modder friendly publishers.
  • A key moment to track for investors is the upcoming release of Age of Wonders 4 scheduled for 2nd May 2023.
  • The competitive advantage of Paradox lies in its engine for creating these grand strategy games. The engine is developed over many years, and competitors will need to spend a long time if they wish to enter this niche.
  • The company has 36% profit margins, but needs to produce growth to justify the current valuation.

Rewards

  • Trading at 13.6% below our estimate of its fair value

  • Earnings are forecast to grow 22.6% per year

Risks

  • Profit margins (20.2%) are lower than last year (33.5%)

View all Risks and Rewards

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned.

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