We recently compiled a list of the 7 most profitable gaming stocks to invest in. In this article, we’ll take a look at where NetEase Inc. (NASDAQ:NTES) ranks among the most profitable gaming stocks to invest in.
The evolution of gaming: Key trends shaping the market
The gaming industry is currently experiencing significant changes due to evolving technology and consumer preferences. One of the most notable trends is the integration of artificial intelligence (AI) to transform game development and player experience. AI is used to enhance gameplay by creating more realistic environments and adapting to individual player styles. We discuss this in more detail in a short excerpt from our previous article, 7 Best Gaming Stocks to Buy Now.
“According to Bernard Marr, a world-renowned futurist and author of Generative AI in Practice: 100+ Amazing Ways Generative Artificial Intelligence is Changing Business and Society, generative AI is an attractive technology for developers. Generative AI is revolutionizing video game development by providing tools that allow developers to create unique content, realistic visuals, and immersive gameplay experiences through procedural generation. We believe it can help create unique gaming environments and enable dynamic gameplay experiences that change from session to session.”
Another big trend in the gaming market is the rise of microtransactions, especially in free-to-play games. This monetization model is becoming increasingly popular as developers seek sustainable revenue sources.
On March 24, CNBC reported that the two largest U.S. video game companies, Electronic Arts and Take-Two Interactive, are increasingly relying on live service games, subscriptions, and in-game purchases for revenue. Microtransactions, which allow players to purchase virtual items and features in games using real money, have become an important source of revenue. Popular titles like Fortnite, Call of Duty: Warzone, and Clash Royale utilize this model, with players paying for ongoing updates and seasonal content through subscriptions and battle passes.
Mat Piscatella, Circana’s executive director of video games, said the industry is moving toward a “battle pass” system that packages seasonal content in a way that players find valuable. This approach has led to a more positive response from gamers as they feel they are getting consistent value for their money. This trend shows that game publishers need to continually provide players with new content to maintain interest in these live service games.
According to Comscore’s 2024 State of Gaming Report, approximately 82% of American gamers made in-game purchases in freemium games in 2023. The report also highlights that 62% of adults over the age of 18 participate in gaming activities, demonstrating the growing appeal of video games around the world. different age groups.
Esports are becoming increasingly popular, especially among younger viewers. According to the report, 86% of Gen Z and 80% of Millennials watched esports last year. Furthermore, 53% of Gen Z and 61% of Millennials consume esports content, highlighting the growing popularity of competitive gaming among these age groups.
methodology
To create a list of the 7 most profitable gaming stocks to invest in, we used Finviz and Yahoo’s stock screening tools to find the largest gaming companies. We also reviewed our own rankings, vetted ETFs, and consulted various online resources.
Next, we focused on profitability. From this initial list of over 20 gaming companies, we narrowed our selection to stocks with positive trailing twelve month (TTM) net income and positive net income growth over the past five years. .
To ensure the reliability of our findings, we consulted reliable sources such as SeekingAlpha, which provides insights on net income CAGR over the past five years, and YCharts, which provides information on TTM net income.
Finally, from our list of most profitable stocks that meet our criteria, we focused on the top 7 stocks that are most favored by institutional investors. Data on hedge fund sentiment surrounding each stock was obtained from Insider Monkey’s database of 912 elite hedge funds. The 7 most profitable gaming stocks to invest in are ranked below in ascending order based on the number of hedge funds that own the stock as of Q2 2024.
Why do we care what hedge funds do? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
NetEase Inc. (NASDAQ:NTES)
TTM Net Income: $4 billion
5-year net profit CAGR: 26.92%
Number of hedge fund holders: 35 people
NetEase Inc. (NASDAQ:NTES) is a Chinese technology company specializing in gaming, education, and e-commerce. Its diverse portfolio includes popular mobile and PC games that appeal to domestic and international audiences. Over the years, the company has successfully expanded its services by developing its own games and collaborating with global partners.
NetEase Inc. (NASDAQ:NTES) is focused on growing its gaming business and announcing new titles. Once Human, a recently released multiplayer survival game, quickly gained over 230,000 concurrent players upon release and was ranked among the top 5 games on Steam for July. After the August update, the game rose to the top of Steam’s bestseller charts in 12 countries, with over 10 million downloads. In July, the company released Naraka: Bladepoint Mobile, a battle royale game that features fast-paced combat and a unique AI co-pilot system. The title reached number 3 on the iOS box office charts shortly after its release.
Financially, the company is doing well. In the second quarter of 2024, NetEase Inc. (NASDAQ:NTES) reported net revenue of $3.5 billion, an increase of 6% year over year. Revenue from games and related services increased 7%, primarily driven by mobile titles such as Identity V and Justice Mobile. Mobile games account for approximately 76.4% of total online gaming revenue, highlighting the importance of mobile games to the company’s growth.
NTES is one of the most profitable gaming stocks to invest in. Over the past five years, the company achieved a compound annual growth rate (CAGR) of 16.57% in revenue and 26.92% in net income.
NetEase Inc. (NASDAQ:NTES) is well-positioned in the competitive gaming market due to its commitment to innovation and community engagement. According to Insider Monkey’s Q2 database of over 900 hedge funds, 35 hedge funds held shares in NetEase Inc. (NASDAQ:NTES). As of June 30, Orbis Investment Management was the largest shareholder in NetEase Inc. (NASDAQ:NTES) with an ownership of 1.9 million shares, valued at $182.28 million.
Overall, NTES ranks 4th on the list of the most profitable gaming stocks to invest in. While we see the potential in gaming companies, we believe AI stocks have a better chance of delivering higher returns in a shorter period of time. frame. If you’re looking for AI stocks that are more promising than NTES but are trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article originally appeared on Insider Monkey.
