Zynga, Take-Two Are Top Picks As Goldman Starts Coverage Of Video Game Developers

Goldman Sachs initiated coverage of five video game company stocks Wednesday, with the research firm naming mobile gaming company Zynga Inc ZNGA and "Red Dead Redemption" maker Take-Two Interactive Software, Inc TTWO as its top choices. 

The Thesis 

The $135-billion global video game market is worth investors’ attention, with expectations for high single-digit growth across the sector and several possibilities companies to capture gamers and their money in new ways, analyst Michael Ng said in the initiation note. 

“In fact, every video game publisher has opportunities to expand in-game monetization mechanics across its portfolio,” the analyst said. 

Multiple opportunities exist for additional upside in gaming stocks, Ng said, citing a growing interest in the mobile gaming sector and room for growth in China.

Other possible areas of interest that may be less imminent include the possibility of streaming game delivery and game subscription services and the ongoing rise of esports, he said. 

Goldman started coverage of Zynga and Take-Two with Buy ratings while initiating three other game makers with Neutral ratings.

Zynga, rated Buy with a $5.30 price target, is attractive because it operates in mobile gaming, the fastest-growing platform, and should benefit from the release of several new games and features, Ng said. The company has several games forthcoming tied in to popular franchises like "Game of Thrones," "Harry Potter" and "Star Wars," the analyst said.

Take-Two Interactive, rated Buy with a $130 price target, has a popular franchise in "Red Dead Redemption," the anticipated release of a new "Grand Theft Auto" title and new games in 2020, "he Humankind Odyssey" and "The Outer Worlds."

Other Ratings

• Activision Blizzard, Inc. ATVI, which produces "Call of Duty." Neutral with a $50 price target.
• Electronic Arts Inc. EA, which is known for sports games but is banking on several non-sports releases in 2019, including "Battlefield V." Neutral with a $99 price target. 
• Ubisoft Entertainment SA UBSFY “has the longest runway for margin expansion as it captures its fair share of digital and integrates more in-game monetization into its games,” Ng says. Neutral with a price target of 81 euros ($93.09). 

Related Links: 

Take-Two 'Outexecuting Its Peers,' Says Bullish MKM Partners

Zynga Is Well Positioned In The Favorable Video Game Market, Stifel Says

"Call of Duty: Black Ops 4" screenshot courtesy of Activision Blizzard.