The Video Game Stocks Every Investor Should Know

As gaming expands to mobile platforms, digital downloads, and new technology like virtual reality, the leading video game companies have proven to be huge winners for many investors.

In this segment from Industry Focus: Consumer Goods, Vincent Shen welcomes contributor Seth McNew to the show as they discuss some of the major game publishers that investors should know if they want to get into this space.As it turns out, shares of each of the companies discussed have gained approximately 300% or more in just the past five years.

A full transcript follows the video.

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This video was recorded on March 23, 2017.

Vincent Shen:You mentioned developers. Who are some of the big names? Generally, I think of two guys. Who are the two big names,for anybody who isn't as familiar with this industry, in terms of leading with the most popular game titles, best sellers?

Seth McNew:The big behemoths, as it's been for a long time isElectronic Arts(NASDAQ: EA) andActivision Blizzard(NASDAQ: ATVI). Those are two of the companies that are reallyfocused on gaming. You have other companies that maybe have gaming as a part of their company. These companies are all gaming, and they're the two biggest players in the industry. So, you haveActivision Blizzard, they're themaker ofgames likeOverwatch,World of Warcraft, some of these really big names.

Shen:Yeah,really big franchises. I will add,for Activision,I always like to give people some scalein terms of the video game industry. I found, before we started filming the show,the number of video game playersglobally is estimated at about 1.8 billion,approaching 2 billion. That's incredible. I think that number isat least half now, or maybe even more than half, ofthe entire population that hasregular internet access. So,it gives you an idea of the share ofentertainment that video games can hold.

But ultimately, for Activision,being the biggest player in the latest quarter,for example, they reported over $1.5 billion of revenue witheach of their major gaming platforms. Now,if you think about gaming,traditionally, it may have beenconsoles and PCs, now mobile gaming. All three of those platforms, over $1.5 billion in revenue. Asyou mentioned, with those in-game purchases,those are so vital because itextends that revenue tail for a lot of these titles. They're in-game purchases hit a record $3.8 billion,and that's growing at incredible rates. This is part of that entertainment share idea, which I really like. In 2016, the company boasted 43 billion hours of engagement with customers, which approximately matchesNetflix. So,I don't know about you, but I don't play video gamesas often as I used to anymore,but I know that myself, a lot of people in my family are big Netflix watchers. So,the idea that you have that as an option,all of its competitors, and of course,you have this entire other medium as well. It's very interesting.

McNew:Thismust be what the fitness people are talking about, as to why they need this bill passed.

Shen:[laughs] And then, forActivision, across its entire portfolio of games,across the platforms, 450 million active users, huge base. ThenElectronic Arts, they have recently,in terms of big franchises that you might recognize,Battlefield 1,FIFA '17was the best selling title of last year,and they're making a lot of similar progress as their rival. Digital sales now count for60% of total revenue,enjoying a very high rate of growth. They have something thatwe will talk about more, which I think is really interesting,which is their Competitive Gaming division, which istargeting eSports. That's something that we can get to when we get to the future of what the spacein this industry will look like.

McNew:And,of course, talking about EA, we can't forget Star Wars, of course.

Shen:Yes,course. They have had a lot of success in their mobile space, too, with that Star Wars title. But,beyond the two behemoths,like you said, who are some other names,potentially, that investors can follow that they might not recognize?

McNew:There certainly are some other players in the space, other thanNintendoand some of those other bigger names. There's a company,Take-Two Interactive,a little bit younger company than these big ones, butgrowing fast, especially recently. They've had a lot of growth. This is the maker of games like Grand Theft Auto andsome other big titles that people would recognize. Another good company isNetEase,this is a Chinese media company. This is much more than gaming. They have email platforms, e-commerce sites, but theirmain revenue comes from gaming. They make their own games, but they also distribute games, they have an agreement with Activision Blizzard todistribute some of their games. That's growing a ton because of theinternet penetration rate in China. Most recently, you have over 700 million people thereaccessing the internet. Much of that is through mobile. It's a great opportunity for NetEase.

Seth McNew has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Netflix, and Take-Two Interactive. The Motley Fool recommends Electronic Arts and NetEase. The Motley Fool has a disclosure policy.