The best three tech stocks for 2017
Tech shares have been the stock market darlings of 2017, but have would-be investors missed the boat? Here are three gaming sector stocks that are more attractively priced than some of the larger companies that are grabbing the headlines.
Technology stocks have been the stock market favourites of 2017, with stratospheric gains from some of the biggest names in the marketplace. The Nasdaq technology index has set many new record highs, but a recent sell-off brought some of those frothy stocks back down to earth a little. When you think of technology, you probably think of the ‘FANG’ stocks (Facebook, Amazon, Netflix and Alphabet) and these would have been fantastic stocks to buy if you’d got in early enough.
Now, with Amazon shares trading at almost $1000 each, many would-be investors might be feeling like they’ve missed out. So here are three different, and better-priced, tech ideas to consider for this year and beyond. These three are all among the top ten public companies in the world by video game revenues.
Video game makers are seeing their shares reach new highs as consumer appetite for the latest consoles stays strong and digital gaming grows in popularity.
The average gamer in the US is a 35-year-old with plenty of disposable income, and more than half of them play at least once a week. More women are now identifying themselves as gamers, with 41% of players in the US being female. This trend is presenting an even bigger potential customer base for games developers. The games industry is tipped to be a major driver of consumer technology development, with virtual reality (VR) opening up new frontiers. About 11% of US households own a VR headset and one third of the most frequent gamers say they plan to buy one next year.
Gaming is already competing successfully and capturing consumer spend from film, TV and other leisure activities, and S&P 500 company Activision Blizzard could be well placed to capture some of this spending. The maker of Doom, Call of Duty and World of Warcraft reported strong second quarter numbers, with revenues of $1.63 billion, although its forecast for revenues for the full year were slightly below analysts’ expectations.
The future challenge for game makers is to monetise their intellectual property beyond the initial sale of a physical game. In-game purchases are an important aspect of this. Activision Blizzard delivered nearly $1 billion of in-game revenue in the quarter, and reported 407 million monthly active users.
Its shares are trading at $65, up 80% year to date, and more than 450% over the last five years.
China’s most valuable company, Tencent, specialises in social media and online games and, incidentally, owns a stake in Activision Blizzard. Often called ‘China’s Facebook,’ the company is known for its instant messaging service, WeChat, which boasts 960 million users.
In its last quarterly earnings report, results beat analysts’ forecasts, with profits surging 70% to a record $2.7 billion. Sales of online games including Honour of Kings helped drive revenue growth. Owning Tencent shares gives exposure to other sectors as well. The group is starting to invest more heavily in digital health and biotech and has backed number of US startups in this area.
It is thought that it wants to apply the latest tech innovations to some of China’s healthcare problems, including rising lung cancer rates caused by pollution and widespread smoking. It also has a controlling stake in Tencent Music Entertainment Group, which has a Spotify-like music streaming service and is reportedly planning a $10 billion initial public opening (IPO).
But Tencent does face challenges, not least from the interference of the Chinese state in the corporate sector. In mid-August, the stock slumped 5% in a single day after the Chinese government said it would probe the online news service of Tencent and others, on concerns about offensive user-generated content.
Currently trading at 326HKD (about £32), Tencent is up 73% year to date.
Another of the gaming industry’s heavy hitters, Electronic Arts (EA) is the company responsible for FIFA, the Sims, Star Wars Battlefront and Need for Speed. Analysts have described EA as a well-managed company which could benefit from the right approach to the growth in digital and subscription-based gaming.
EA has recently reported slowing mobile growth, but sales of its digital games are on the increase. It is also investing in virtual reality technology — last year it launched a new division dedicated to virtual and augmented reality, deep learning, and ‘virtual humans.’
After a difficult few years and a share price at just $11, the group made a number of cost savings in 2013 when it reorganised the business and cut a number of jobs. This strategy seems to have paid off and it now looks like a compelling recovery story.
EA’s shares started gathering pace in February this year and are now up 47% year to date at around $120.