Gaming stocks have performed nicely recently.
I have recommended Activision (ATVI, Financial) and Electronic Arts (EA, Financial), and both stocks performed well since. Activision has been my favorite pick from the sector, and the stock has more upside to offer.
A lot of growth potential
It is well known to everyone that Niantic recently launched the world’s first augmented reality-based mobile game called "Pokémon Go." At present, there are millions of monthly active users on "Pokémon Go," and this suggests video games have become huge business.
As a matter of fact, Activision Blizzard is one of the best-growing game stocks this year. The company has been rolling out hit games for decades with gigantic winners such as "Call of Duty," "Skylanders"Ă‚ and "World of Warcraft."
Furthermore, the company has introduced some new games like "Hearthstone" and "Destiny,"Ă‚ which appealed to massive numbers of gamers. As a matter of fact, there were combined 544 million monthly active users across Activision, Blizzard and King Digital in the last quarter.
Obviously, that’s a huge figure, and analysts anticipate that it will continue to escalate as consumer outlays around the globe increase. Apart from this, digital game sales have become significant for gaming companies as it reduces the need to buy a game physically from stores.
The company, with the help of the digital sales trend and rising in-game purchases, has been able to gradually surge its gross margin through the past 10 years, making the company even more profitable.
Enhancing profit
Activision Blizzard’s most recent quarterly results have been imposing. In the prior two quarters, the company outdid its own sales as well as profit guidance and raised its full-year outlook on both fronts.
In the most recent quarter, the company's bottom line increased 45%, excluding the costs associated with its King Digital acquisition. The company is gaining a lot of benefits from a few positive trends that are helping it make its business sturdier and more lucrative.
Consumers are heading in the direction of digital sales, comprising trivial transactions as well as full-game downloads. As an outcome, Activision is able to generate even more profit by cutting off retailers between the company and consumers.
Conclusion
Growing digital sales will continue to have a positive effect on Activision’s profits by improving its margins. As a result, the stock still has considerable upside to offer.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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