For this column, I will define “hot gaming stocks” as companies in the gambling and video-game sectors that have positive momentum.
In the U.S., gambling stocks are generally poised to generate strong results. That’s because America’s gambling hub — Las Vegas — is thriving in every possible way, while online sports betting is also jumping by leaps and bounds. Also worth noting is that the Chinese gambling hub of Macau, where a few American companies own casinos, is waking up from the long slumber it underwent due to the coronavirus pandemic.
When it comes to video games, most American companies are struggling since, in general, consumers in the U.S. are devoting a larger share than ever before of their time and money to experiences and a much lower percentage of their time and money than usual to in-home pursuits like video games. In January 2023, for example, total U.S. video game sales fell 5% year-over-year. Consequently, there are not many hot video game stocks in the U.S., and I would not recommend buying any of the stocks of U.S.-based video game producers.
In Southeast Asia, the situation is different, as the sales of the video-game sector are expected to grow significantly in that region both in 2023 and 2024, according to Statista. Similarly, the revenue of the Chinese video game sector is also expected to increase meaningfully this year, and in 2024, Statista reported.
Las Vegas Sands (LVS)
Las Vegas Sands (NYSE:LVS) owns four large casinos in Macau, leaving it well-positioned to benefit from the region’s revival. And that revival is quite strong, as Macau’s gross gaming revenue soared 33% year-over-year in February to over $1 billion.
Moreover, investment bank CBRE believes that the average Street estimate undervalues Macau’s likely 2023 gross gaming revenue total. The bank also expects Macau casinos’ margins to increase meaningfully this year and predicts their momentum will accelerate in 2023.
Also upbeat on LVS stock recently was another investment bank, Jefferies, which increased its price target on the shares to $66 from $64 on March 13. After visiting the company’s casinos and meeting with its management, the firm wrote that it’s more upbeat about LVS. It maintained a “buy” rating on the shares.
Finally, George Soros, one of the most well-respected investors of our time, owned LVS stock as of the end of last quarter.
Caesars (NASDAQ:CZR) exposes investors to booming Las Vegas, as one of its nine casinos is located in the city. And with U.S. travel and spending on experiences, the company’s five casinos in other American towns should perform quite well. Finally, the company owns three casinos in the Middle Eastern hub of Dubai, which should be booming after oil prices stayed high for most of the last year.
Caesars also has an online sports betting business, enabling it to capitalize on the considerable growth of that sector in North America. Encouragingly, last quarter, the sales of its digital business jumped over 100% year-over-year to $232 million, while the unit’s EBITDA loss narrowed to $5 million from $305 million.
Meanwhile, overall its revenue surged 9% year-over-year last quarter, while its “same-store” EBITDA, excluding some items, jumped to $957 million from $581 million.
Regarding Caesars’ results, investment bank analyst Chad Beynon wrote that the company benefited from strong U.S. consumer spending trends. It reported that CZR’s Q4 EBITDA was 46% above the same quarter of 2019.
Flutter Entertainment (PDYPY)
The owner of the very successful U.S. sports-betting platform, FanDuel, Flutter Entertainment (OTCMKTS:PDYPY), has been getting some very impressive, positive attention from business-news outlets lately. On March 17, for example, Barron’s reported that, according to Flutter, FanDuel had obtained a 50% share of the U.S. online-sports betting market last quarter. And the publication noted that Flutter had gained “1.2 million new customers in the first two months of this year,” while it expects FanDuel’s U.S. business to enter the black this year.
Also noteworthy is that, during the Super Bowl, FanDuel received a huge “50,000 bets per minute at [the] peak” and that Flutter is considering listing its shares on an American stock exchange. Currently, the shares are only listed on an over-the-counter- exchange in New York.
FanDuel’s annual revenue is a rather large $3 billion. CNBC quoted “Jeffrey Kamys, chief investment strategist for the iBet ETF” as saying that if FanDuel does list its shares on a New York exchange, it “would be the Apple of our industry.”
Melco Crown (MLCO)
Two of Melco’s (NASDAQ:MLCO) four main casinos are located in Macau, making the stock a great play on the revival of Macau.
As I noted in this column’s earlier section on Las Vegas Sands, “Macau’s gross gaming revenue soared 33% year-over-year in February to over $1 billion.”
Moreover, in a February 21 note, investment bank Jefferies predicted that the region would generate positive EBITDA in February.
Also encouraging was the statement by Melco’s CEO released in conjunction with the company’s fourth-quarter results on March 1. Specifically, CEO Lawrence Ho stated,
“We are encouraged by the increased visitation and volume that we have seen since the travel restrictions between mainland China and Macau were relaxed on January 8…. Our recent performance reinforces our belief in the return of pent-up demand and our view that Macau will continue to develop as a leading international destination for entertainment and leisure.”
The current market capitalization of MPEL stock is less than its 2019 revenue of $5.74 billion. I believe that indicates that if Macau becomes as popular as it once was, which seems likely to occur, MLCO stock is likely to soar.
Bilibili (NASDAQ:BILI) “provides online entertainment services for” young people in China, focusing on ” video services [and] mobile games.”
Since, as I noted in my introduction, the revenue generated by video games in China is expected to climb significantly in 2023 and 2024, Bilibili looks to be well-positioned going forward.
Providing evidence for that thesis, the company’s revenue climbed 6% year-over-year last quarter, while its net loss fell 29% YOY. And impressively, its average monthly users climbed 20% YOY to 326 million.
In a note to investors on March 24, Bank of America upgraded BILI stock to “buy” from “neutral,” citing the company’s cost cuts and the bank’s belief that the company can break even next year because its ad business is growing at a 20% annual clip. Finally, the bank noted that Bilibili is poised to introduce “six or seven games in China and overseas starting in the second-quarter,” Seeking Alpha reported.
Also upgrading Bilibili earlier this month was Citi, which raised the shares to “buy.” The bank believes that the company’s balance sheet risks have “largely” dissipated, and Citi expects the company’s growth to accelerate in Q2.
MGM Resorts (MGM)
Worth noting when evaluating MGM stock is the fact that Nevada’s total gaming wins jumped 185 year-over-year in January.
Meanwhile, BetMGM, MGM’s online sportsbetting and online casino game joint venture, expects to generate positive EBITDA in the second half of this year. BetMGM’s CEO, Adam Greenblatt, reported that the joint venture “continues to benefit from reduced customer acquisition costs, a more targeted retention strategy, and a surge in” betting activity, LSR reported. Moreover, when it comes to online casino games, BetMGM has the most market share in North America, with a 30% share.
MGM’s overall fourth-quarter results were also impressive, as its revenue jumped 17% year-over-year, and its diluted earnings per share jumped to 69 cents from 23 cents during the same period a year earlier. Also noteworthy is that the company launched a new $2 billion share buyback initiative.
One of China’s leading video game makers, NetEase (NASDAQ:NTES), is well-positioned to benefit from the strong growth of the sector in both China and Southeast Asia, where it also sells games.
JPMorgan is upbeat on NetEase’s outlook, as the firm on March 1 raised its rating on the video-game maker to “overweight” from “neutral,” The firm noted that NTES intends to launch nine games this year, with seven of the titles debuting in China and two coming out in other countries. In Q2 and Q3, the bank expects NetEase’s gaming revenue to climb %-9% versus the same period a year earlier.
Finally, JPMorgan noted that the company has a $5 billion share buyback program. In my view, that’s quite a large commitment, considering that the market capitalization of NTES stock is $59.2 billion.
Last quarter, NetEase’s net income, excluding certain items, came in at nearly $700 million, while its top line climbed 4% year-over-year.
As of the date of publication, Larry Ramer was long MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.