With interest rates rising amid a turbulent macroeconomic environment, discretionary expenditure is set to decline. This is expected to hit non-essential sectors, such as entertainment, which is expected to see softening of demand.
However, interactive entertainment is set to remain an exception. Gaming received a boost amid widespread lockdowns during the pandemic.
The market for gaming has been growing with the increasing per capita income, growing interest, and the increasing number of dual-income households, supplementing the transformation of the world market. With the rising penetration of smartphones and cloud adoption, the global gaming market is expected to grow at 13.2% CAGR to reach $545.98 billion by 2028.
With these developments in mind, it could be a good time to invest in entertainment stocks Playtika Holding Corp. (PLTK), DoubleDown Interactive Co Ltd (DDI), and GRAVITY Co. Ltd. ADR (GRVY).
Playtika Holding Corp. (PLTK)
PLTK is a mobile game developer based in Herzliya, Israel. The company distributes its portfolio of casual and casino-themed games to the end customer through various web and mobile platforms.
On November 21, PLTK announced the execution of an agreement for a $25 million minority investment in Turkish mobile gaming company Ace Games (“Ace”). The company believes this to be an important milestone in the execution of its new games investment strategy.
On October 10, PLTK announced that it had accepted 51,813,472 shares out of 73,905,922, validly tendered for purchase for a total cost of $600 million. This is expected to positively impact the EPS of outstanding shares of PLTK in the coming years.
For the third quarter ended September 30, 2022, PLTK’s revenue increased 1.9% year-over-year to $647.8 million. During the same period, casual games, representing 54.9% of overall revenues, grew 14.4% year-over-year, while the company’s Average Daily Paying Users (DPUs) increased 5.8% year-over-year to 3,10,000 users.
PLTK’s adjusted EBITDA for the quarter stood at $230.7 million, while its net income came in at $68.2 million or $0.17 per share. The company’s total assets stood at $2.99 billion as of September 30, 2022, compared to $2.8 billion as of December 31, 2021.
Analysts expect PLTK’s revenue and EPS for fiscal 2023 to increase 2.8% and 30.3% year-over-year to $2.69 billion and $0.84, respectively. The stock has dipped 1.5% over the past month to close the last trading session at $9.27.
PLTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to 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 Quality. Within the Entertainment – Toys & Video Games industry, it is ranked #5 out of 21 stocks.
Click here for additional POWR ratings for Sentiment, Momentum, Growth, and Stability for PLTK.
DoubleDown Interactive Co Ltd (DDI)
DDI, based in Seoul, South Korea, is engaged in developing and supplying online and mobile games in domestic and foreign markets. Its popular offerings include DoubleDown Casino, DoubleDown Fort Knox, DoubleDown Classic, and Ellen’s Road to Riches.
During the third quarter, DDI agreed in principle to settle the Benson class action complaint and is not expected to record any future charges related to it.
As part of its growth plans, DDI is now focused on releasing its new title, Spinning in Space, before year-end while continuously developing additional new titles for 2023 and innovating its flagship title, DoubleDown Casino.
DDI’s revenue of $78.8 million in the third quarter of 2022 was 14% higher than that in the third quarter of 2019 (the most recent comparable period prior to the pandemic). Furthermore, it was able to maintain its Average Revenue Per Daily Active User (“ARPDAU”) at $0.96, comparable to the year-ago quarter, despite global inflation and recessionary pressures that impacted player behavior.
During the same period, DDI even slightly increased its Monthly Active Users (MAUs) over the previous-year quarter to 2.27 million. The company’s total assets stood at $1.03 million as of September 30, 2022, compared to $969.81 thousand as of December 31, 2021.
Analysts expect DDI’s revenue to increase 1.6% year-over-year to 327.97 million during the fiscal ending December 2023. During the same period, the company’s EPS is expected to increase to $1.50 per share.
The stock has dipped 1.8% over the past month to close the last trading session at $8.90.
DDI has an overall rating of B, translating to a Buy in our POWR Ratings system. The stock has grade A for Value and Sentiment and grade B for Stability and Quality.
DDI tops the 21 stocks in the Entertainment – Toys & Video Games industry.
Additional POWR Ratings for DDI’s Growth and Momentum can be found here.
GRAVITY Co. Ltd. ADR (GRVY)
GRVY is based in Seoul, South Korea. The company distributes, develops, and publishes online games in South Korea, Taiwan, Thailand, and Japan. It categorizes products into over three categories: mobile games and applications, online games, and other games, and game-related products and services.
On November 15, GRVY announced the official launch of its widely acclaimed game, Ragnarok Begins, in North America. The game can be played on both PC and mobile and is expected to be a game-changer for the company.
GRVY’s total revenue for the fiscal third quarter ended September 30, 2022, increased 6.1% sequentially to ₩ 102.38 billion ($75.76 million). Revenue from mobile games showed a sequential increase of 16.8% to ₩ 79.44 billion ($ 58.79 billion).
Net quarterly profit attributable to GRVY came in at ₩16.08 billion ($11.90 million). The company’s total assets stood at ₩397.89 billion ($294.44 million) as of September 30, 2022, compared to ₩327.53 billion ($242.37) as of December 31, 2021.
The stock dipped 1.3% over the past month to close the last trading session at $42.67
GRVY has an overall rating of B, which translates to a Buy in our POWR Ratings system. It has an A grade for Value.
GRVY is ranked #5 in the same industry. Click here for additional ratings for GRVY’s Growth, Stability, Sentiment, Quality, and Momentum.
PLTK shares were trading at $9.26 per share on Tuesday afternoon, down $0.01 (-0.11%). Year-to-date, PLTK has declined -46.44%, versus a -14.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.
With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More…
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