The current video game industry is bigger and more diverse than ever. Today’s video games offer photorealistic graphics and simulate reality to an astonishing degree in many cases. Moreover, technological advancements are expected to drive the growth of the market.  

Moreover, the growing internet penetration rate and the easy availability of internet games are boosting the gaming sector. The global video game market was valued at $195.65 billion in 2021 and is expected to expand at a compound annual growth rate of 12.9% from 2022 to 2030. 

Hence, the fundamentally strong video game stock Playtika Holding Corp. (PLTK) might be an ideal investment.  

However, the gaming sector’s ability to weather an economic downturn is being questioned. Data from analytics firm NPD showed that U.S. consumer spending on video games is expected to decline 8.7% this year. 

Given this backdrop, fundamentally weak gaming stocks Roblox Corporation (RBLX) and Unity Software Inc. (U)  might be avoided now.  

Stock to Buy: 

Playtika Holding Corp. (PLTK) 

PLTK develops mobile games worldwide. It owns a portfolio of casual and casino-themed games and distributes its games to the end customer through various web and mobile platforms. The company is headquartered in Herzliya Pituarch, Israel. 

On September 7, it was reported that Bingo Blitz, a PLTK studio and popular free-to-play Bingo game, had partnered with renowned actress Drew Barrymore in a one-year partnership to kick off a new era of bingo. The reinvention of the classic game might benefit the company. 

PLTK’s revenues increased marginally year-over-year to $659.60 million in the second fiscal quarter that ended June 30, 2022. For the six months ended June 30, the company’s comprehensive income grew 1.9% from the prior-year period to $119.10 million, while its cash flow from operating activities rose 27% year-over-year to $241.10 million. 

The consensus EPS estimate of $0.79 for the fiscal year ending December 2023 represents a 21.2% improvement year-over-year. Similarly, the consensus revenue estimate of $2.76 billion for the same year represents a 4.8% year-over-year increase. 

The stock has gained 10.7% over the past five days to close its last trading session at $10.37.  

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 is rated an A in Value and a B in Quality. Within the 22-stock Entertainment – Toys & Video Games industry, it is ranked #6. 

Beyond what is stated above, we’ve also rated PLTK for Growth, Momentum, Stability, and Sentiment. Get all PLTK ratings here. 

Stocks to Avoid: 

Roblox Corporation (RBLX)  

RBLX operates as a developer and operator of an online entertainment platform. The company’s offerings include Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud.  

RBLX’s loss from operations rose 19.1% from its year-ago value to $170.27 million in the fiscal second quarter that ended June 30. Its adjusted EBITDA decreased 69.6% year-over-year to $54.64 million.

The company’s net loss attributable to common stockholders grew 25.9% from the same period last year to $176.44 million, while net loss per share attributable to common stockholders increased 20% year-over-year to $0.30. 

RBLX’s EPS is likely to come in at a negative $0.31 for the fiscal third quarter that ended September 2022, indicating a decline of 136.1% from the prior-year period. Its revenue is estimated to be $681.04 million for the same quarter. 

RBLX’s shares have declined 62.1% year-to-date to close its last trading session at $39.15. The stock has fallen 14.7% over the past six months. 

It’s no surprise that RBLX has an overall F rating, which translates to a Strong Sell in our POWR Rating system.  

The stock also has an F grade for Stability and Sentiment and a D in Growth, Value, and Momentum. It is ranked last in the same industry. 

To see additional POWR Ratings for Quality for RBLX, click here. 

Unity Software Inc. (U) 

U operates as a platform for creating and running real-time three-dimensional content. The company’s platform has two segments: Create Solutions and Operate Solutions. Its offerings include Unity Ads and Unity IAP (In-App Purchases) to help users monetize content, Multiplay for multiplayer game hosting, and Vivox to enable game player-to-player communications. 

In September, it was announced that AppLovin Corporation (APP) had scrapped its plans to acquire U after the latter opposed its $17.54 billion offer. This deal could have combined two prominent providers of tools for mobile developers. 

For the fiscal second quarter that ended June 30, 2022, U’s non-GAAP loss from operations widened 6,351% year-over-year to $44.13 million. Its non-GAAP net loss rose 3,862.5% from the previous-year quarter to $53.14 million. Its non-GAAP net loss per share grew 1,700% year-over-year to $0.18. 

Analysts expect U’s loss per share for the fiscal third quarter (ended September 2022) to grow 147.7% year-over-year to $0.15. The company’s revenue is expected to be $326.51 million for the same period.  

The stock has declined 74.9% year-to-date to close the last trading session at $35.81. The stock plunged 61.8% over the past six months.  

U’s overall F rating translates to a Strong Sell in our proprietary rating system. 

The stock also has grade D for Value and Stability. It is ranked #21 in the same industry. 

In addition, we have also rated U for Growth, Momentum, Sentiment, and Quality. To see all POWR Ratings for U, click here.  

RBLX shares were trading at $34.84 per share on Friday afternoon, down $4.31 (-11.01%). Year-to-date, RBLX has declined -66.23%, versus a -22.35% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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