The gaming industry gained traction during the pandemic era, as people turned to online entertainment amid multiple lockdowns and social distancing measures. With the continued remote lifestyle, the popularity of gaming remains. Furthermore, rising internet connectivity, increasing smartphone adoption, and smooth gaming experience with the emerging technological innovations, including 5G, artificial intelligence (AR), blockchain, virtual reality (VR), cloud, and quantum computing, should fuel the demand for the gaming industry.
According to a report by Mordor Intelligence, the gaming market is expected to reach $339.95 billion by 2027, growing at a CAGR of 8.9%. Mobile gaming is projected to generate $136 billion in revenues in 2022. Increasing usage of smartphones and improvements to mobile infrastructure and the internet should drive the growth of the mobile gaming sector.
Given these factors, it could be wise to add high-quality, small-cap gaming stocks SciPlay Corporation (SCPL) and DoubleDown Interactive Co., Ltd. (DDI) to your watchlist.
SciPlay Corporation (SCPL)
SCPL develops, markets, and sells a portfolio of social games for mobile and web platforms in North America and internationally. The company offers social casino games, including Jackpot Party Casino, Quick Hit Slots, 88 Fortunes Slots, Gold Fish Casino, and Hot Shot Casino, and casual games, such as Solitaire Pets Adventure, Bingo Showdown, and Backgammon Live. It has a market capitalization of $1.80 billion.
In March, SCPL continued expansion into a fast-growing casual market with the acquisition of Alictus, a global developer of popular, casual mobile games. SCPL acquired 80% of Alictus for $100 million in an all-cash transaction and will acquire the remaining 20% over the next five years. This transaction might allow the company to rapidly expand in the casual gaming market, increase active users, diversify revenue streams, and broaden its global player network.
In the fiscal 2022 first quarter, which ended March 31, 2022, SCPL's revenue increased 4.6% year-over-year to $158 million. Its net cash provided by operating activities improved 86.7% from the year-ago value to $36.60 million. As of March 31, 2022, the company's total assets stood at $742.40 million compared to $681.60 million as of December 31, 2022.
The $178.14 million consensus revenue estimate for the fiscal 2022 fourth quarter, ending December 2022, represents a 15.4% improvement from the prior-year period. Analysts expect the company's EPS for the same quarter to come in at $0.28, representing a 209.5% increase year-over-year. It has surpassed the consensus revenue estimates in three of the trailing four quarters.
SCPL’s shares have improved 19.9% over the past month and closed yesterday's trading session at $13.79. Also, its year-to-date gain translates to 4.1%.
SCPL's POWR Ratings reflect this promising outlook. It has an overall grade of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
SCPL has a grade of A for Value and B for Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #8 of 22 stocks. Click here to see additional POWR Ratings (Stability, Growth, Momentum, and Sentiment) for SCPL.
DoubleDown Interactive Co., Ltd. (DDI)
Headquartered in Seoul, South Korea, DDI develops and publishes digital games on mobile and web-based platforms for casual players in South Korea. The company provides DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Undead World: Hero Survival games. Its games are distributed, marketed, and promoted through third-party platform providers. DDI has a market capitalization of $619.36 million.
On January 31, DDI completed a $1.5 million investment in Epic Games, a leading interactive entertainment company and provider of 3D engine technology. “This was an opportunistic investment for the Company that was generated by our partners in Korea and allowed us to gain exposure to the rapidly growing metaverse, while we also continue to evaluate M&A opportunities that would be complementary to our core business,” said In Keuk Kim, DDI’s CEO.
DDI’s net cash flows from operating activities increased 28.8% year-over-year to $28.38 million in the fiscal 2022 first quarter, which ended March 31, 2022. The company’s cash and cash equivalents and total current assets came in at $174.92 million and $292.52 million, respectively, as of March 31, 2022.
Analysts expect DDI's revenue to come in at $91.82 million for the fiscal 2022 fourth quarter, ending December 2022, representing a rise of 6.4% from the same period in 2021. Also, street expects the company's EPS for the same quarter to increase 1,088.6% year-over-year to $4.16.
The stock has increased 17.3% over the past month and closed yesterday's trading session at $11.44.
DDI's strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which translates to Buy in our proprietary rating system.
DDI has a grade of A for Value and Sentiment. It has a grade of B for Stability and Quality. Within the Entertainment - Toys & Video Games industry, it is ranked #1 of 23 stocks. Click here to see additional POWR Ratings (Growth and Momentum) for DDI.
SCPL shares closed at $14.06 on Friday, up $0.27 (+1.96%). Year-to-date, SCPL has gained 2.03%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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