Video game developers have been around for a while now as publicly-traded companies, but investors looking to find a good play in the space should still have lots of opportunity ahead. The gaming market was worth about $200 billion in 2021 and the industry is expected to keep expanding, growing by an estimated CAGR of about 12 per cent over the next five years.
And Gaming is in the news these days, with tech behemoth Microsoft’s bid to buy Activision Blizzard looking like it’ll come to pass — satisfying among others Warren Buffett whose Berkshire Hathaway currently owns about ten per cent of Activision shares. Gaming along with the pull of the virtual world and metaverse are reportedly top of mind for Microsoft in the deal, and that’s also been the play by Meta Platforms, of course, whose new branding says all you need to know about a tech company going all-in on virtual reality.
Yet there are ways to participate in the gaming space without relying on Big Tech, and neither do investors have to restrict themselves to game developers to participate in the space.
Here are three Canadian gaming names with quite distinct profiles but all having scored recent Buy ratings from analysts.
First up is Toronto-based PopReach Corp (PopReach Stock Quote, Charts, News, Analysts, Financials TSXV:POPR), which is a mobile game publisher of free-to-play games including the Smurfs franchise, Kitchen Scramble, Gardens of Time and Kingdoms of Camelot.
Last fall, PopReach announced a major merger with digital tech acquirer Federated Foundry, with the deal having been completed this April for an aggregate price of $160 million. Currently with a market cap of $83 million, PopReach is definitely at the smaller end of the spectrum but now with the Federated transaction behind it the company is poised for growth. That’s according to Beacon Securities analyst Gabriel Leung who called PopReach’s upcoming Q2 results likely to be transformative for the company.
Writing after PopReach’s first quarter results, Leung said in a June 3 report, “We’ve made some adjustments to our estimates and are maintaining our Buy rating and $1.30 target price, which is based on 3x CY23e EV/Sales. We believe upside to our estimates could come from the upcoming launch of Payday, acquisitions, and better-than-expected growth from Federated.”
Leung said POPR’s first quarter came in better than expected at revenue and EBITDA of $4.6 million and $841,000, respectively, which were above Leung’s estimates at $4.3 million and $245,000. Looking ahead, the analyst is calling for full-year 2022 revenue to climb by about 250 per cent to $60.2 million, while EBITDA is expected to triple to $7.2 million.
At the time of his report’s publication, Leung’s $1.30 target price reflected a projected one-year return of 233 per cent.
Next is BRAGG Gaming (BRAGG Gaming Stock Quote, Charts, News, Analysts, Financials TSX:BRAG), which has retail, online and mobile platforms focusing on casino and slot machine games. The $135-million market cap company has seen its share price tumble over the past year and a half, going from a high of $30 last February to now in the $6-$7 range.
But the company has made some recent moves that should be of interest to investors, including the acquisition of iGaming company Spin Games for US$30 million, a move that the company says will open up its exposure across the United States, with Spin having 30 in-house developed games and casino licenses and distribution across a number of US states.
A second major event for BRAGG was the announcement of a new CEO in Yaniv Sherman, a move which Eight Capital analyst Adhir Kadve says will help facilitate the company’s expansion through the US and effectively remove a slight overhang on the stock that’s been around for over half a year.
“With the closing of the Spin acquisition two weeks back, in our view, the US market can become a significant driver of growth for Bragg through the end of this year and into the future given that the growth of iGaming (i.e. online casinos) in the US is in its early-days. Thus, we think that Mr. Sherman’s experience in the US market will serve Bragg well as it looks to ramp up its expansion in the US market. Mr. Sherman will be joining Bragg in the CEO role as of July 1st 2022,” Kadve wrote in a June 13 report.
Kadve reiterated his “Buy” rating and $12.00 target for BRAGG, which at the time of publication represented a projected one-year return of 80 per cent.
Last up is Vancouver-based mobile casual game developer East Side Games (East Side Games Stock Quote, Charts, News, Analysts, Financials TSXV:EAGR), another stock that’s been hammered this year but one which offers a compelling investment opportunity, according to iA Capital Markets analyst Neehal Upadhyaya.
Formerly LEAF Mobile, East Side Games publishes casual or idle games for audiences of niche and/or cult followings, with titles involving well-known cultural signposts like Trailer Park Boys, Cheech and Chong, RuPaul and the US sitcom the Office. Along with developing is own idle games, EAGR also sells the use of its game development platform IdleKit to other developers.
Upadhyaya initiated coverage of East Side Games with a “Buy” rating last month, saying the company has strong growth prospects and has a demonstrated track record in scoring strong intellectual property partnerships.
Management has shown its ability to responsibly grow the business through positive FCF generation, and given the Company’s robust Game Kit technology, superior organic growth profile of the business, successful underlying metrics of its games (ARPDAU, DAU and DAU/MAU), and M&A upside, we believe the risk/reward profile is compelling at these levels,” Upadhyaya wrote in a May 19 report.
Upadhyaya gave EAGR a $5.00 per share target price, which at press time represented a projected return of 122 per cent.