3 Video Game Stocks to Sell on Slowing Sales
The video game industry has had a roller coaster year in 2022. After posting record-breaking sales during the pandemic’s peak, the economic reopening caused the gaming market to take a sharp downturn. Sales plunged over the first three quarters due to dwindling demand from an already fragile economy. Consequently, it was one of the worst years for the video game sphere shedding light on how much uncertainty affects every sector of our economy. Hence, it’s probably the right time for investors to ponder over video game stocks to sell
Inflation is at multi-year highs, and economic concerns have led to fears of a looming recession. Unfortunately, this means consumers are cutting back their spending on video games. Newzoo estimates that this will eventually lead to a 4.3% decrease in sales this year, compared to a 7.6% increase just last year and a 25% bump in 2020.
The meme stock frenzy that lifted GameStop (NYSE:GME) stock to unfathomable heights will surely go down as an iconic story. However, those looking forward to a similar historic rally will likely be disappointed with the current market conditions. The focus is on the company’s operating performance which is far from being its strong suit.
Revenue growth over the past five years has averaged a negative 6.4%. Moreover, net income and free cash flow margins over the same period are also deep in the red. Physical and software sales continue to plummet each quarter. In its most recent quarter, the firm posted a wider-than-expected loss in line with the slowdown in revenue growth. With the slowdown in sales across the board, a turnaround for GME stock is unlikely. Its stock is trading at a premium across several metrics, further limiting its long-term attractiveness.
Take-Two Interactive (TTWO)
Take-Two Interactive (NASDAQ:TTWO) is a leading video game publisher with an incredible asset class that boasts a stellar track record over the past few decades. Moreover, the firm has a massive loyal fan base that has enabled the firm to generate substantial earnings over time. However, the slowdown in video game sales has weighed down its results of late.
In the past couple of quarters, TTWO has handily missed analyst estimates on both lines. Moreover, in the all-important holiday quarter, it expects net bookings to fall in the $1.41 billion to $1.46 billion range, in comparison to consensus forecasts of $1.69 billion. Additionally, for the full year, bookings are at $5.4 billion to $5.5 billion, while analysts have pegged bookings at $5.89 billion.
Also, the firm’s foray into mobile gaming has so far been an unprofitable one. Its merger with Zynga games has led to higher costs and net losses, which points to a troubling outlook ahead.
Ubisoft (OTCMKTS:UBSFY) is another leading video game publisher that has been one of the mainstays in the gaming sphere. The market headwinds at this time, however, have significantly slowed down company results of late. Year-over-year revenue growth is at a negative 5%, while EBITDA growth is much worse at a negative 88%.
Ubisoft’s recent net bookings figures have been far from encouraging. The video game publisher has yet to see the returns it desired on its most popular titles, and it seems the delay of Avatar: Frontiers of Pandora won’t do them any favors. Therefore, its near-term outlook looks particularly bleak. It appears that the game publisher’s slate of upcoming games will be lighter than expected, further hurting their ability to generate solid short-term revenue. Hence, investors should tread carefully regarding this company, given the current climate.
On the date of publication, Muslim Farooque 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.