4 Feel-Good Gaming Stocks

The gaming industry is on fire this year thanks to COVID-19 keeping more people indoors. The World Economic Forum forecasts the global gaming industry's revenue is set to hit $165 billion for the whole year. This should benefit all gaming companies, even some that might not come immediately to mind. Penn National Gaming PENN, Tencent Holdings TCEHY, Sony SNE, and Microsoft MSFT are riding the gaming wave and surfing away.

Penn National Gaming – massive expansion ahead

Considering Penn's 41 gaming properties in 19 states were forced to shut down during the pandemic, its stock made a great comeback. Most of its locations have reopened, but the recent surge in coronavirus cases is bringing a great deal of uncertainty. Fortunately, positive vaccine developments give hope that it won't be long before Penn can return to operating at full speed. But even until that happens, online sports betting segment is doing extremely well. After all, this gaming operator has been successful over the last decade by managing both to growth revenue and maintain the operating margin in double digits. It was greatly helped when the Professional and Amateur Sports Protection Act (PASPA) was overturned in 2018 as this paved the way for for more states to legalize sports betting outside of Nevada, and 21 states have followed suit.

This year, it decided to invest in Barstool Sports, a sports media company, gaining more than 60 million monthly active users and more than 100 million social media followers. Besides this userbase, it gained advertising rights for 10 years on the Barstool Sports platform. It is already helping the company expand its offering of online sports betting in Pennsylvania with the launch of the Barstool Sports app in September which was the most-downloaded sports app the first weekend it became available, despite only being launched in only one state.

The majority of Penn National Gaming's growth will come from online sports betting as the CEO Jay Snowden revealed that the company will massively expand to offer sports betting in every state in which it operates and where sports betting is legal by the end of next year.

Tencent – gaming is bright, but so are its other segments

The ecosystem of this conglomerate with a market cap greater than $700 billion includes a social media platform, fintech, e-commerce, and other products in addition to gaming that accounts for about one third of its revenue. It now has 140 licensed games under its umbrella. One of its more notable gaming-related acquisitions is its ownership stake in Epic Games who is the developer of Fortnite, with which it gained access to 350 million players.

In the latest quarter, gaming revenue increased by 45% compared to last year to $6.3 billion, which is a much greater rate than the total 29% growth of total revenue.

Tencent's gaming growth may slow once the world moves past the pandemic but analysts forecast a 32% profit increase in 2021. But the bottom line is that this is a massive media company and gaming is merely one of its growth drivers as the company defines itself as a"world-leading game development, publishing, and operation platform."

Sony is back in the game

Some of the businesses of the consumer electronics giant have suffered amid the pandemic, mostly due to supply chain disruption. However, the PlayStation 5 could bring a breath of fresh air. It is the first new console since the previous generation machine, the PlayStation 4, came out seven years ago. The PS5 will bring much more than faster load times and preliminary sales data out of Japan shows 120,000 units were sold in its first four day. This is almost six times more than Microsoft's Xbox Series X and Xbox Series S sold during their first six days. However, this is only one country and the period does not include the holiday season.

The gaming division made up less than one-fourth of Sony's revenue in the latest quarter, but it accounted for one-third of the operating income. Upcoming games such as Marvel's Spider-Man: Miles Morales will likely help enhance its gaming reputation and allow Sony the build further on this momentum.

Microsoft is not leaving gaming behind

Given Microsoft's success in cloud computing, its gaming segment often gets forgotten. Still, the Xbox is a growth area within its "more personal computing" division. Like Sony Microsoft launched its next-generation Xbox, the Series S/X in November, seven years after its last-generation console, the Xbox One.

Admittedly, early Xbox sales numbers aren't great but with the success of Xbox Game Pass, potential is there. The new consoles could also bring more interest in Microsoft's games as of the end of fiscal 2020 that ended in June, Xbox Game Pass had 15 million subscribers and nearly 100 million Xbox Live players. Gaming revenue increased by 30% in the most recent quarter and it is expected to increase further with the release of the Series X.

Microsoft also signed a partnership with GameStop GME. It took some time for the troubled GameStop to recover after its stock cratered after the release of its third quarter earnings report, but it certainly appears this old dog is learning some new tricks as its gaming console upgrade cycle has officially kicked off.

Outlook

Gaming revenue is driven by consumers' discretionary income. In other words, this is what's left over in people's wallets when they pay their bills and meet their basic demands. According to the Federal Reserve Bank of St. Louis, disposable income levels are higher than before the pandemic, in part because of the large stimulus package passed by the government and the gaming world benefited already with the outlook looking just as bright as COVID-19 won't be conquered overnight.

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