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Motorsport Games Inc. (MSGM - Get Rating) and Activision Blizzard, Inc. (ATVI - Get Rating) are household names regarding e-sports and gaming. MSGM develops video games for iconic motorsport racing series and is an e-sports partner of choice for NASCAR, Formula E, and other racing series. ATVI develops content and services for video game consoles, computers and mobile devices. It also operates e-sports leagues and offers digital advertising content.
The outbreak of COVID-19 pandemic helped the e-sports industry gain considerable traction as gamers on lockdown found home entertainment to be more or less their only option. In fact, a spike in interest from traditional sports organizations has also pushed e-sports further into the mainstream and brought it to the attention of a wider audience. This has prompted major gaming and e-sports players like MSGM and ATVI to diversify their product portfolios and expand their presence across multiple platforms to fuel further growth this year and beyond.
In terms of their past month’s performance, ATVI is the clear winner, with 8% gains versus MSGM’s negative returns. But which of these stocks is a better pick now? Let’s find out.
Last month, MSGM launched Traxion, a new content platform that delivers users the latest news, reviews and opinions from the world of virtual racing. This is the third vertical to the company’s product portfolio, and the company expects that it will soon become the go-to destination for the best racing games and e-sports content.
Also in February, MSGM entered an agreement to acquire the assets and the business of KartKraft, a PC kart racing simulator, to diversify its gaming portfolio. MSGM believes that this will help expand the company’s content development, digital product sales capabilities, and esports ecosystem.
Last month, Blizzard Entertainment, a division of ATVI, unveiled a slew of news and games for a global online audience of fans and enthusiasts on the BlizzConline platform. Later this year, the company is set to roll out new games, such as Hearthstone Mercenaries, Chains of Domination, and Rogue.
In December, ATVI ’s Call of Duty series hit a new record by surpassing $3 billion in net bookings over the last 12 months. This is a significant milestone for the company, which is focused on building a diverse pipeline featuring a large amount of free, post-launch content and events across the franchise.
Recent Financial Results
MSGM’s total revenue increased 68.4% year-over-year to $16.11 million in the nine-months ended September 30, 2020. Its gross profit grew 87.4% from its year-ago value to $10.85 million. The company reported net earnings of $875,419 compared to a net loss of $2.95 million in the prior-year quarter. It generated an adjusted EBITDA of $3.28 million compared to adjusted EBITDA loss of $3.54 million.
ATVI’s net revenues have increased 21.5% year-over-year to $2.41 billion in the fourth quarter, ended December 31, 2020. Its non-GAAP EPS rose 22.6% from the year-ago value to $0.76, while its net bookings have grown 12.5% over the same period to $3.05 billion. The company’s operating income increased 30.8% year-over-year to $594 million over this period.
Expected Financial Performance
Analysts expect MSGM’s revenue to increase 23.7% in the current year.
In contrast, ATVI’s revenue is expected to increase17.2% in the current quarter, and 1.3% in the current year.
ATVI’s trailing-12-month revenue is significantly higher than MSGM’s. Also, ATVI is more profitable with a gross profit margin of 72.1% versus MSGM’s 67.9%.
In fact, ATVI’s net income margin of 27.2% compares favorably with MSGM’s 1.4%.
In terms of trailing-12-month ev/sales, MSGM is currently trading at 26.20x, 206.4% higher than ATVI’s 8.55x. Also, in terms of trailing-12-month price/cash flow, the company is currently trading at 835.41x, which is significantly higher than ATVI’s 33.96x.
So, ATVI is the more affordable stock.
MSGM has an overall rating of C, which translates to a Neutral in our proprietary POWR Ratings system. However, ATVI has an overall rating of B, which represents a Buy. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
ATVI has a Momentum Grade of B, which is consistent with its price returns over the past month. MSGM also has a Momentum Grade of B.
In terms of Quality Grade, ATVI has a B grade given its higher profitability. In comparison, MSGM has a Quality Grade of D, reflective of its lower profitability.
Both ATVI and MSGM have a Sentiment Grades of B, which is consistent with analysts’ expectation about their revenue growth potential.
Of the 24 stocks in the B-rated Entertainment – Toys & Video Games industry, ATVI is ranked #6 while MSGM is ranked #19.
Our POWR Ratings system has also rated both ATVI and MSGM for Growth, Stability, and Value. Get all ATVI’s ratings here. Click here to see the additional POWR Ratings for MSGM.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
While both ATVI and MSGM can be considered good long-term investments given their strong investments in premium content and the huge growth potential of the e-sports and gaming industry, ATVI appears to be a better buy based on the factors discussed here.
ATVI is a relatively cheaper and more profitable gaming franchise option on which to bet. Moreover, it is a proven winner, and the accelerating growth in demand for e-sports and video gaming could help the company maintain its leadership position over the long run.