Which Video Game Stock Is A Better Buy?

Activision Blizzard, Inc. (ATVI) and Zynga Inc. (ZNGA) are two established players in the video game industry. ATVI develops and publishes interactive entertainment content and services on various gaming platforms, through subscription sales, full games and games, and by licensing software to third party or related companies that distribute Activision and Blizzard products. On the other hand, ZNGA develops, operates and markets social games as live services on mobile platforms, social media platforms and PC consoles. It also provides advertising services, branded virtual items, sponsorships for merchants and advertisers, and licenses its brands.

The restrictions imposed by the pandemic on outdoor entertainment activities have helped the video game industry to generate huge profits amid the pandemic. The expanding active user base has prompted companies to launch realistic PC and mobile games with powerful graphics and lower latency, esports on gaming platforms and advanced game consoles.

While easing restrictions are expected to slow demand, the launch of compelling content and advanced software is driving industry growth. Investor interest in this space is evident from the Wedbush ETFMG Video Game Tech ETFs (GAMR) Gains of 5.6% over the last three months. Growing interest in metaverse games and the evolution of blockchain and web games3 shine the long-term growth prospects of the industry. The global video game market is expected to grow at a 9.7% CAGR to reach 225.10 billion dollars by 2025. Thus, ATVI and ZNGA should benefit from it.

ATVI is a winner with Gains 13.5% over ZNGA’s 6.1% returns in terms of performance last month. But which of these titles is the best choice now? Let us know.

Latest developments

On October 28, 2021, ATVI announced the acquisition of Barcelona-based mobile game developer Digital Legends. He joins ATVI’s growing list of independent studio teams, supporting the development of an unannounced Call of Duty mobile title. Digital Legends’ expertise in high-quality mobile titles for mobile is expected to help ATVI’s mobile talent pool grow significantly.

On December 21, 2021, ZNGA and Forte, a leading developer of blockchain solutions for game publishers, formed a strategic alliance to promote and exploit exciting opportunities in the evolving Web3 and blockchain games market. Additionally, this partnership will help leverage ZNGA’s intellectual property, brand, and community to develop blockchain games.

Recent financial results

ATVI’s total net revenues for its fiscal third quarter, ended September 30, 2021, increased 5.9% year-on-year to $ 2.07 billion. The company’s non-GAAP operating income was $ 893 million, up 4.3% from the prior year period. While its non-GAAP net income increased 2.3% year-over-year to $ 699 million, its non-GAAP EPS increased 1.1% to $ 0.89. The company had $ 9.72 billion in cash and cash equivalents as of September 30, 2021.

For its fiscal third quarter, ended September 30, 2021, ZNGA’s revenue increased 31% year-over-year to $ 571.10 million. However, the operating loss of the company amounted to $ 12.30 million, which indicates a loss of 89.9% compared to the period of the previous year. ZNGA’s net loss was $ 41.70 million for the quarter, representing a 65.9% year-over-year decline. Its loss per share fell 63.6% year-over-year to $ 0.04. The company had $ 1.09 billion in cash and cash equivalents as of September 30, 2021.

Past and expected financial performance

ATVI’s revenue and EBIT grew at CAGRs of 8.1% and 28.4%, respectively, over the past three years. The company’s total assets have grown 12.8% CAGR over the past three years.

Analysts expect ATVI’s EPS to increase 8.6% year-on-year in fiscal 2021 and 0.8% next year. His revRevenue is expected to grow 3.9% year-over-year in fiscal 2021 and 4.3% next year. The company’s EPS is expected to grow at a rate of 13.3% per year over the next five years.

In comparison, ZNGA’s revenue and EBIT have grown at CAGRs of 45% and 167.1%, respectively, over the past three years. The company’s total assets have grown 44.3% CAGR over the past three years.

ZNGA’s EPS is expected to decline 4.7% year-on-year in fiscal 2021 and 21.8% next year. The company’s revenue is expected to grow 41.1% year-over-year in fiscal 2021 and 11.3% next year. The company’s EPS is expected to grow at a rate of 6.7% per year over the next five years.

Evaluation

In terms of a non-GAAP futures P / E, ZNGA is currently trading at 18.95x, 8.3% higher than ATVI’s 17.5x. In terms of non-GAAP PEG forward, ATVI’s 1.10x compares to ZNGA’s 4.21x.

Profitability

ATVI’s revenues over the past 12 months are almost 3.3 times higher than those generated by ZNGA. ATVI is also more profitable, with a rate of 37.6% EBITDA margin against 27.7% for ZNGA.

In addition, ATVI’s net profit margin and ROE of 29.2% and 16.9%, respectively, compare favorably to negative ZNGA values.

POWR odds

While ATVI has an overall rating of B which translates to Buying in our property POWR odds system, ZNGA has an overall C rating, equivalent to Neutral. POWR scores are calculated by considering 118 distinct factors, each weighted to an optimal degree.

ATVI and ZNGA both have a B rating for value, which is in line with their lower valuation ratios than the industry. ATVI has a forecast EV / EBIT ratio of 12.42, which is 24.7% below the industry average of 16.49x. ZNGA’s forward EV / EBIT multiple of 11.71 is 29% above the industry average of 16.49x.

ATVI has a B grade for Quality, consistent with its profitability ratios higher than those of the industry. ATVI’s net profit margin of 29.2% over the past 12 months is 347.2% above the industry average of 6.5%. In comparison, ZNGA’s C rating for quality is in line with its negative profit margin.

Of the 23 C-rated stocks Entertainment – Toys and Video Games Industry, ATVI is ranked No. 5, while ZNGA is No. 16.

Beyond what we have stated above, our POWR rating system also rated ATVI and ZNGA for Growth, Sentiment, Momentum, and Sentiment. Get all ATVI odds here. As well, Click here to view additional POWR ratings for ZNGA.

The winner

Video game industry boom spurred by pandemic set to slow because increasing vaccination rates make access to outdoor activities safe. However, the introduction of advanced game content, the growing interest in the metaverse, and the evolution of Web3 gaming and blockchain are expected to drive the growth of ATVI and ZNGA going forward. But, a relatively lower valuation and higher profitability makes ATVI a better buy here.

Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the top rated stocks in the Entertainment – Toys and Video Games industry.


ATVI stock was trading at $ 66.89 per share on Monday afternoon, up $ 0.36 (+ 0.54%). Year-to-date, ATVI is down -27.61%, compared to a 28.90% increase in the benchmark S&P 500 over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…

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