The video game industry has a long history of innovation and growth. Where players used to spend their money buying physical game discs in stores, now games are delivered at a lower cost directly to players on a PC, console, or mobile device.
The advent of cloud gaming services will make interactive entertainment more accessible to millions around the world. There is a great opportunity for manufacturers of games, as well as companies selling gaming controllers and other accessories.
The following are two good timbers to buy that can be weighed for both immediate and long-term gain.
1. Action Blizzard
MicrosoftAcquisition Action Blizzard (Atvi 0.32%) in all the funds negotiated for $95 per share, it is increasingly unlikely to receive approval from regulators. With the stock trading around $85, investors can potentially lock in a 12% return by buying it today, although not much has been done yet.
The addition of high-performance video games to Microsoft’s Xbox Game Pass service would significantly strengthen the software giant’s gaming division, which is anchored by the Xbox console and Windows marketing businesses. However, the US Federal Trade Commission has already filed a complaint against the proposed merger, so the deal could still fail.
If the deal doesn’t get the thumbs up, stock buybacks will still win over patient shareholders. Investors still have a very profitable producer with a huge opportunity for long-term growth.
Action makes some of the industry’s best-selling games, most notably The cry of office and world time. Across all console games, PC, mobile, the company ended 2022 with 371 million monthly active users. When you have many players with these titles with a credit card placed against each other, you will not run out of profitable opportunities.
Because most of the activity’s revenue is generated from players spending money on adding content to the game, the company has a steady income and free cash flow every year. The company also spends a small percentage of its approximately $2 billion in free cash flow on dividends.
Hugely popular The cry of office and its impact on the competitive landscape at the hands of Microsoft has been a point of scrutiny by regulators across several jurisdictions. But regulators in Japan and the UK have recently expressed some concern about the potential for business combinations to harm competition. The market saw this news as a big step towards closing the deal.
The stock is up 7.5% over the last month, so investors will see a more than 50% chance the deal will be completed, which could happen by the end of June, as Microsoft first expected.
If you’re interested in locking in 12% returns over the next few months as a likely catalyst for profitability, now is the time to buy.
2. Corsair Kids
The ability to sell games goes beyond games. There is a great opportunity for leading peripheral brands that design and manufacture technical accessories such as controllers, headsets, gaming keyboards, and mice. Corsair Kids (CRSR -4.28%) is the leading brand in the $4.4 billion market for gaming peripherals, according to Market Research Experts, and the volatility in the stock gives long-term investors the opportunity to buy shares cheaply.
Many hunters rushed to buy gambling bets at the beginning of the pandemic. That event caused the collapse of Corsair in 2020, but inflation, supply issues throughout the gaming hardware market and the retrenchment of the economy from the pandemic have weighed on the business in 2022.
The new trunk roars, but the Corsair is not growing. In fact, 2023 could be a much better year for the company. Corsair turned in a strong quarterly revenue performance, with the top line advancing 28% over the third quarter.
Too many issues that hurt sales last year seem redundant. Corsair avoided a heavy drop in the fourth quarter with strong sales of the SCUF controller, driven by the launch of Activision. Called Pietasque: Modern Race II. Popular new releases from top game developers can be a strong growth catalyst for a company over the long term.
On a cost basis, the stock is trading at a premium to its 2020 initial public offering price. It also looks cheaper compared to its current price adjusted for 2021 earnings per share of $1.45, when business conditions were stronger. That’s an expensive price multiple of 12.6 – about half of what the average property sells for.
With global sales of gaming peripherals expected to grow at a compound annual growth rate of 8% through 2028, according to Market Research Experts, Corsair is valued according to its expectations to grow with the industry.