The global gaming market has grown significantly, driven by technological advancements, increased accessibility and the rise of trends like the metaverse and e-sports. Industry reports estimate the market will grow from $272.86 billion in 2024 to $426.02 billion by 2029, with a compound annual growth rate, otherwise known as CAGR, of 9.32%.
Meanwhile, the performance of gaming stocks mostly hinges on the ability to innovate, retain users and capitalize on emerging trends. As with all long-term investments, potential investors should keep a close eye on a given gaming company’s financials, user metrics, as well as strategic moves. With that information, here are three gaming stocks to buy in the second quarter.
Nintendo (NTDOY)
Among the gaming stocks to buy, Japan-based Nintendo (OTCMKTS:NTDOY) stands out for its long-standing history and enduring popularity. Founded in 1889, Nintendo has evolved from a playing card company to a global leader in video game platforms and mobile applications, known for its innovative consoles and iconic characters. Many readers are likely to be familiar with its franchises such as Super Mario, Zelda and Pokémon.
Nintendo operates primarily through its flagship product, the Nintendo Switch platform, which accounts for more than 90% of revenues. The gaming company also has revenue from mobile, intellectual property and traditional playing cards.
Yet, despite a diverse product range, the Nintendo Switch remains the cornerstone of Nintendo’s revenue generation.
Recent financials for the full fiscal year ending March 2024 showed revenues of 1.67 trillion Japanese yen. This meant a 4.4% increase year-over-year, with ordinary income climbing 13.2% to 680.5 billion JPY. Over three-quarters of the sales came outside of Japan. With a net profit margin of over 29%, the company boasts impressive profitability margins.
Meanwhile, management forecasts revenue to decrease to 1,350 billion JPY during fiscal year 2025. Nonetheless, the company plans to unveil the successor to the Nintendo Switch before March 2025. This milestone will arrive more than nine years after the initial launch of the Switch in March 2015.
So far in the year, NTDOY stock has advanced over 13.43% the past month. Shares are changing hands at a forward price-to-earnings ratio of 20.55x earnings and a price-to-sales ratio of 5.84x. These metrics potentially reflect investor confidence in Nintendo’s ability to maintain its market strength, especially with the upcoming console update.
Roblox (RBLX)
If you are looking for a gaming company with a niche in combining creativity with online collaboration, then Roblox (NYSE:RBLX) deserves your attention among the lists of gaming stocks to buy. Over the platform, users create and explore 3D digital worlds. Online gamers point out that Roblox’s approach has democratized game development while enriching the platform’s offerings.
Currently, Roblox boasts a market capitalization of approximately $21 billion. According to recent earnings results, revenue for the quarter was $801.3 million, up 22% YOY.
In terms of bookings, which represent the sales of virtual goods on the platform, there was also a notable increase by 19% to reach $923.8 million. The gaming company generates revenue primarily through its virtual currency, Robux.
One of the most widely watched indicators of Roblox’s results is its user engagement metrics. The platform’s daily active users reached 77.7 million by the end of March, up 17.55% from the previous quarter. In other words, the platform has growing appeal among users.
Moreover, the total hours engaged on the platform surged to 16.7 billion in the first quarter of the year, up by over 15% from the previous quarter.
Despite the strong growth of the platform, the gaming stock has lost approximately 22% year-to-date. Yet the P/S ratio of 6.99x highlights that Roblox shares still command a premium valuation.
As the metaverse trend gains traction worldwide, Roblox’s position as a user-generated content platform is likely to become even more prominent. Readers watching developments in the broader metaverse space may regard declines below the $40 level as a better entry point into RBLX stock.
Tencent (TCEHY)
Founded in 1998 and headquartered in Shenzhen, the conglomerate Tencent (OTCMKTS:TCEHY) has evolved from a regional tech company into a global powerhouse. The company has been involved in various sectors including gaming, social media and fintech. Thus, for investors eyeing the gaming stocks to buy, TCEHY may offer a viable opportunity.
Tencent’s financial health is robust. On May 14, management of the Chinese group released financial results for the first quarter of 2024. Total revenue of $22.5 billion was up 6% over the first quarter of 2023. Meanwhile, operating margin went up to 37% from 30% a year ago.
Analysts highlight that Tencent has been showing promising growth, particularly in its gaming sector. The company reported a 26% year-over-year growth in advertising revenue, driven by enhanced engagement and artificial intelligence-powered ad targeting.
Meanwhile, the fintech and business services segment is also growing, bolstered by wealth management services and increased technology service fees.
Since January, TCEHY has advanced 36%. Meanwhile, the shares are trading at a valuation of about 31.06 times forward earnings. In recent weeks, many Chinese stock market heavyweights, including Tencent, have been buying back their shares. If this trend continues, the future might be even brighter for TCEHY stock investors.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.