The entertainment industry is experiencing rapid growth, particularly in the video games and toys sectors. Factors such as the surge in mobile gaming, the rise of e-sports, and the surge in online gambling contribute to various companies' success in this industry.
In light of these trends, investors could consider adding fundamentally strong entertainment stocks like SciPlay Corporation (SCPL) and Playtika Holding Corp. (PLTK) to their investment portfolios to capitalize on the global demand. However, the fundamentally weak stock of Roblox Corporation (RBLX) might be avoided.
According to Statista, the number of video game users is projected to reach 3.1 billion by 2027, with user penetration expected to hit 39.0% by 2027, leading to a market volume of $467 billion by 2027. Additionally, the toys and games market revenue is anticipated to grow annually by 2.6% over the next five years.
Several factors are fueling the gaming industry's growth, including broader internet access and the integration of advanced technologies. Projections indicate that the global gaming market is set to reach $665.77 billion by 2030, exhibiting a CAGR of 13.1%.
On top of it, with the growth of sports betting, the global online gambling market is predicted to reach $153.57 billion by 2030, registering a CAGR of 11.7% from 2023 to 2030.
Given such promising forecasts, the entertainment landscape looks geared for substantial growth. However, the gaming industry is not void of challenges. Moreover, inflation is still eating away consumers’ income.
Against this backdrop, let's delve deeper into the fundamental aspects of the featured stocks from the Entertainment - Toys & Video Games industry, starting with the third.
Stock #3: Roblox Corporation (RBLX)
RBLX is an online entertainment platform company providing tools like Roblox Studio for 3D content creation, Roblox Client for user exploration, and Roblox Education for learning experiences. It serves a global customer base and offers a collaborative human co-experience platform.
RBLX’s trailing-12-month gross profit margin of 14.08% is 71.5% lower than the industry average of 49.37%. Also, its trailing-12-month EBITDA margin, ROCE, and net income margin of negative 42.30%, negative 318.29%, and negative 46.81%, compare with the industry averages of 18.49%, 4.12%, and 4.13%, respectively.
RBLX’s total cost and expenses increased 30.6% year-over-year to $994.76 million for the fiscal second quarter ended June 30, 2023. Its loss from operations widened 84.4% from the prior year’s quarter to $313.99 million.
Moreover, net loss and net loss per share attributable to common stockholders came in at $282.78 million and $0.46, worsening 60.3% and 53.3%, respectively, from the year-ago values. Additionally, as of June 30, 2023, RBLX’s total liabilities stood at $5.44 billion, compared to $5.07 billion as of December 31, 2022.
Street expects RBLX’s loss per share for the fiscal third quarter ending September 2023 to widen 2.3% year-over-year to $0.51. Moreover, the company’s loss per share for the next quarter (ending December 2023) is expected to widen 5.7% year-over-year to $0.51. Also, RBLX failed to surpass the EPS estimates in three of the trailing four quarters, which is disappointing.
The stock has declined 36.8% over the past six months and 34% over the past three months to close the last trading session at $27.61.
RBLX’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RBLX has an F grade for Quality and a D for Growth, Value, Stability, and Sentiment. It is ranked last out of 30 stocks in the Entertainment - Toys & Video Games industry.
Click here to see RBLX’s additional POWR Ratings for Momentum.
Stock #2: SciPlay Corporation (SCPL)
SCPL is a developer and publisher of digital games on mobile and web platforms. The company operates in the social gaming market and offers a variety of social casino games such as Jackpot Party Casino, 88 Fortunes Slots, etc., and casual games comprising Bingo Showdown, Solitaire Pets Adventure, Backgammon Live, and more.
On August 8, SCPL and Light & Wonder, Inc. (LNW) announced a definitive agreement under which LNW will acquire the remaining approximately 17% equity interest in SCPL in an all-cash transaction for $22.95 per share.
The management considers this merger to be a strong opportunity to maximize value for SCPL's shareholders and to position both businesses favorably.
The stock’s trailing-12-month EBIT margin of 22.59% is 165.6% higher than the 8.50% industry average. Also, its trailing-12-month ROCE and ROTC of 21.11% and 16.17% compare with the industry averages of 4.12% and 3.49%, respectively.
SCPL’s revenue increased 18.6% year-over-year to $189.90 million for the fiscal second quarter that ended June 30, 2023. The company’s operating and net income grew 18.8% and 28.2% from the year-ago values to $39.20 million and $41.40 million, respectively.
Also, net income attributable to SCPL per share increased 8.7% year-over-year to $0.25. In addition, its adjusted EBITDA improved by 44.5% from the prior-year quarter to $59.40 million.
The consensus revenue estimate of $183.97 million for the third quarter (ending September 2023) represents a 7.7% increase year-over-year. Likewise, the consensus EPS estimate of $0.23 for the current quarter indicates a 17.2% improvement year-over-year.
Moreover, the company topped the consensus revenue estimates in all four trailing four quarters. SCPL’s shares have gained 104.9% over the past year, closing the last trading session at $22.83.
SCPL’s positive fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality. Within the same industry, it is ranked #6 out of 30 stocks.
Click here to view SCPL’s ratings for Growth, Momentum, Stability, and Sentiment.
Stock #1: Playtika Holding Corp. (PLTK)
PLTK, headquartered in Herzliya Pituach, Israel, is an international mobile game developer. The company has a selection of casual and casino-themed games. It offers its games to end users via a variety of web and mobile channels.
On September 15, PLTK announced that it is set to acquire Innplay Labs, an Israeli mobile gaming studio, in a deal worth up to $300 million, expanding PLTK's portfolio with a focus on the Luck Battle genre and strengthening its position in the mobile gaming industry.
This strategic move reflects PLTK's commitment to leveraging technology and innovation for sustained growth and enhancing its game offerings.
On August 1, PLTK announced that it is set to acquire Azerion's Youda Games portfolio, including Governor of Poker 3, for €81.3 million ($86.78 million), with a potential total consideration of up to €150 million ($160.12 million) based on performance.
This strategic acquisition aligns with PLTK's growth strategy, leveraging its LiveOps expertise and technology stack, expanding its game offerings, and potentially enhancing its financial performance.
PLTK’s trailing-12-month gross profit margin of 71.44% is 44.7% higher than the industry average of 49.37%. Moreover, its trailing-12-month EBITDA margin and net income margin of 26.47% and 12.24% are 43.1% and 196.4% higher than the industry averages of 18.49% and 4.13%, respectively.
For the fiscal second quarter that ended June 30, 2023, PLTK’s income from operations increased 52.5% from the year-ago value to $139.20 million.
The company’s net income and net income per share attributable to common stockholders came in at $75.70 million and $0.21, up 108% and 133.3%, respectively, from the prior-year quarter.
Moreover, PLTK’s credit adjusted EBITDA stood at $215 million, up 6.7% year-over-year.
PLTK’s EPS is estimated to grow 7.5% year-over-year to $0.87 for the fiscal year ending December 2024. Similarly, the company’s revenue is projected to reach $2.66 billion, up 3.2% from the prior year. Additionally, it surpassed the revenue and EPS estimates in three of the trailing four quarters.
PLTK’s shares have gained 17.2% year-to-date and 6.6% over the past month, closing the last trading session at $10.11.
PLTK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Stability and Sentiment. Within the same industry, it is ranked #2.
Click here to view PLTK’s ratings for Growth and Momentum.
What To Do Next?
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RBLX shares were trading at $26.46 per share on Tuesday morning, down $1.15 (-4.17%). Year-to-date, RBLX has declined -7.03%, versus a 16.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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