5 Online Gaming Stocks to Play

NEW YORK ( TheStreet) -- The global gaming landscape is expected to see expansive growth in 2012, according to a survey of 1,150 gaming professionals at the Global Gaming Expo show. The $60 billion global video game marketplace recorded a 1% surge in its October retail video game sales to $1.08 billion after a consecutive five-month decline, following new game releases. About seven of the top 10 games in the month sold 23% more than the top 10 games released in October 2010.

The gaming industry is expected to grow at an average 13.7% CAGR for the period 2011 to 2016, a PR Newswire report says. Further, a Pyramid Research report sees the global mobile gaming market growing at 16.6% to $18 billion in 2014, driven by the significant increase in mobile subscriptions.
Of the 25 analysts covering Electronic Arts, 48% recommend a buy and 40% rate a hold.

Based on latest quarterly results and analysts' buy, hold recommendations, these five online gaming stocks have potential upsides ranging from 17% to 83%. On average, these stocks have buy recommendation of 63% and hold rating of 28%, based on a Bloomberg consensus.

The stocks are listed in ascending order of upside potential.

5. International Game Technology ( IGT) specializes in the design, development, manufacture, distribution, sale of computerized gaming equipment, software and network systems primarily for the North American and international markets.

Of the 23 analysts covering the stock, 52% recommended a buy and 43% suggest a hold. The stock's 12-month average price target is $19.91, about 16.9% higher than the current price, data compiled by Bloomberg show.

For 2011 fourth quarter, total revenue increased 14% to $540 million, with 52% generated from gaming operations and 48% from product sales. Net operating income was $116 million, up 18%. For fiscal year 2011 ended Sept. 30, 2011 total revenue increased 2% year-over-year to $1.96 billion while net operating income increased 19% to $505 million compared to $425 million in the prior year.

The company guides initial fiscal year 2012 adjusted earnings from continuing operations in the range of 93 cents to $1.03 per share. Recently, ITG declared quarterly cash dividend of 6 cents per share payable on Jan. 6, 2012 to shareholders of record Dec. 22, 2011.

The company recently announced the installation of its sbX system at Fantastic Casino Alb rook, a CIRSA property located in Panama and the first sbX casino management solution and player favorite Sex and the City Multi-Level Progressives (MLP) in the U.K. at Gala Leo's Casino, owned and operated by Gala Casinos, in Liverpool.

4. Electronic Arts ( ERTS) is a leading global interactive entertainment software company engaged in the development and distribution of interactive software for video game systems, personal computers, wireless devices and the Internet. In fiscal 2010, Electronic Arts had 27 titles that sold more than one million copies, and 5 titles that sold more than four million copies each, including FIFA 10, Madden NFL 10, Need for Speed SHIFT, The SIMS 3 and Battlefield: Bad Company 2.

Of the 25 analysts covering the stock, 48% recommend a buy and 40% rate a hold. The stock's average 12-month price target is $27.19, which is 17.9% higher than the current price, as per a Bloomberg consensus.

Net revenue for the second quarter of fiscal 2012 was $715 million, up $84 million from the year-ago period. Non-GAAP net income for the quarter stood at $17 million, or 5 cents per share. GAAP and non-GAAP net mobile revenue rose 12.2% to $55 million. For the quarter, core registered users increased to 140 million from 80 million in the same quarter of fiscal 2011.

Madhouse, a mobile advertising network in China, recently partnered with EA mobiles, a division of Electronic Arts, to deliver live advertisements, using Madhouse's SmartMad intelligent targeting technology, into Electronic Arts mobile games in China. ERTS announced that its online game Battlefield 3 sold 5 million units globally in the first week of launch making it the fast selling game in ERTS's history.

For the third quarter of fiscal 2012, the company pegs net revenue between $1 billion and $1.1 billion. The company has raised its net revenue guidance for fiscal year ending March 31, 2012 to range from $4.05 billion to $4.20 billion from its previous view of $3.82 billion to $4.02billion.

3. Giant Interactive Group ( GA) is one of China's leading online game developers and operators in terms of market share. It focuses on massively multiplayer online role-playing games (MMORPG) played through networked game servers. The company operates 11 online games, with 9 self-developed.

Of the 14 analysts covering the stock, 57% recommend a buy and 29% suggest a hold. The stock's average 12-month price target is $6.53, which is 60.1% higher than the current price, as per a Bloomberg consensus.

For the third quarter of 2011, GA reported sales revenues of $72.1 million, up 35.2% from the same quarter a year ago and 5% from the prior quarter. Net income for the company's shareholders was $56.9 million, improving from $1.6 million in the prior quarter and 73.1% from the year-earlier quarter.

GA announced that peak concurrent users (PCU) for ZT Online 2, the sequel to the company's flagship game ZT Online, reached over 435,000 on Sept. 24, 2011. Besides, GA intends to invest $50 million in the Alibaba group -- China's premier technology company -- via an investment in the Yunfeng e-Commerce Funds.

The company recently announced that its board of directors has approved a new share repurchase plan. Under this plan, Giant is authorized to repurchase up to $50 million of its American Depositary Shares (ADRs) over the next twelve months in open-market purchases.

2. Changyou.com ( CYOU) is an online game developer and operator in China engaged in the development, operation and licensing of its massively multiplayer online role-playing games (MMORPG). Besides, it has a leading in-house technology platform that includes advanced 2.5D and 3D graphics engine, a uniform game development platform and many other techniques.

Of the 19 analysts covering the stock, 89% recommend a buy and 11% advise a hold. The stock's average 12-month price target is $42.67, which is 68.2% higher than the current price, as per a Bloomberg consensus.

For the third quarter of 2011, CYOU reported total revenue of $119 million, up 39% from the same period a year ago and a sequential increase of 13% over the prior quarter. For the period, net profit to shareholders stood at $52.8 million, an increase of 17% over the same quarter a year ago.

As per industry news, Changyou.com is planning to launch additional racing contests in Duke of Mount Deer as the game has attracted thousands of players from 136 groups of servers. Up ahead for 2011 fourth quarter, the company expects total revenue to be between $122 million and $125 million and net income of $58 million to $60 million.

1. Perfect World ( PWRD), an online game developer and operator in China, develops games based on its game engines and game development platforms. Its technology capabilities consist of game engines, game development platforms and real-time anti-cheating expertise, developed and built in-house by its development team.

Of the 17 analysts covering the stock, 71% recommend a buy, 18% suggest hold. The stock's average 12-month price target is $23.86, which is 83.1% higher than the current price, as per a Bloomberg consensus.

The company has announced it will release its third quarter results on Nov. 21, 2011. Revenue for the core online game business is estimated between $110.5 million and $116.7 million, increasing 21% to 28% year-over-year. Also, PWRD plans to reduce its in-game promotional activities for a few of its existing games in the third quarter.

PWRD announced a new joint venture with Nexon Korean Corporation, a global online entertainment company and publisher of micro-transaction-based massively multiplayer online games, to manage and operate online games in South Korea.

>>To see these stocks in action, visit the 5 Online Gaming Stocks to Play portfolio on Stockpickr.

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