We recently published a list of 6 Best Video Game Stocks To Invest In. In this article, we are going to take a look at where Bilibili (NASDAQ:BILI) stands against the other best video game stocks to invest in.
Video Gaming Market
According to a report by Precedence Research, the global video games market was valued at $248.52 billion in 2023 and is expected to grow to $664.96 billion by 2033, at a CAGR of 10.32%. The market is driven by the increasing adoption of Augmented Reality (AR) and Virtual Reality (VR) technologies, which provide immersive gaming experiences.
The Asia Pacific region held a revenue share of 54.14% in 2023, driven by the region’s large population, rising disposable incomes, and increasing urbanization. North America held a share of 22.43% in 2023, driven by the presence of leading console manufacturers such as Microsoft and Sony. The region is home to some of the world’s largest and most influential gaming companies, contributing to the industry’s growth.
The market is driven by the increasing adoption of cloud gaming, the introduction of VR and AR technologies, and the growing popularity of online gaming. However, the growing complexity of game development, the increasing costs, and the need for specialized skills and expertise required to develop immersive experiences are restraining the market’s growth.
Gaming Industry Struggles to Secure Investment
According to Spike Laurie, Partner at VC Hiro Capital, the gaming industry is facing a funding crisis, with investors becoming increasingly cautious about backing new projects. The bar is extremely high right now, and merely having a great game idea and a talented team is no longer sufficient to secure investment. Laurie explains that the current economic situation is tough, with interest rates rising and people’s disposable income taking a hit.
Eliana Oikawa, CEO of Wings, an investment company that finances independent game developers, agrees that the fundraising market is tight, and investors are worried about the risk of not being able to raise further rounds. Many funds are sitting on the sidelines, and the collective caution has become self-fulfilling. We’re being very selective about what we’re backing, and we’re looking for companies that have a unique value proposition and a clear path to profitability.
Patrick O’Donnell, Video Gaming Analyst at Goodbody Equity Research, notes that the current situation in the game industry is very challenging. O’Donnell explains that there is a lot of competition, and it’s harder for new games to break through. We’re looking for companies that have a clear entrepreneurial approach and the ability to validate from users or the market early and often. The industry needs to focus on business essentials and make more money than it needs to spend.
The global video games market is poised for significant growth, driven by the increasing adoption of AR and VR technologies, cloud gaming, and online gaming. However, the gaming industry is facing a funding crisis, with investors becoming increasingly cautious about backing new projects.
Our Methodology
For this article, we sifted through ETFs and online rankings to compile an initial list of 15 video game stocks. From that list, we shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The hedge fund sentiment was sourced from our database of 912 elite hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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A group of millennials playing an online game on their mobile devices.
Bilibili (NASDAQ:BILI) is a Chinese online entertainment platform that provides a wide variety of content, including anime, comics, and games. It is popular among younger audiences and has a strong community-based approach, allowing users to interact through comments and contributions.
Bilibili (NASDAQ:BILI) has expanded its offerings into live streaming and mobile games, monetizing its platform through a combination of advertising, subscriptions, and in-app purchases, which has rapidly grown the company into a prominent player in China’s entertainment industry.
In Q2, Bilibili’s (NASDAQ:BILI) revenue from the mobile games business increased 13% year over year to $143.62 million, driven by the launch of new exclusively licensed games, The company’s revenue from the advertising business increased 30% year over year to $290.66 million and gross margin expanded by 6.8 percentage points year over year. The company’s net losses were narrower than expected, and the company is forecasted to report positive normalized earnings by the third quarter. Bilibili’s (NASDAQ:BILI) near-term top-line growth prospects are strong, driven by the growth of its mobile games business and advertising business. The company’s deferred revenue increased by 25% quarter over quarter to $531.26 million.
Bilibili (NASDAQ:BILI) presents a compelling investment opportunity based on its strong top-line growth prospects and favorable profitability outlook in the coming quarters. Industry analysts have a consensus for the stock’s Buy rating, with a median price target of $22.92, which suggests a potential upside of 22% from current levels. As of the second quarter, 25 hedge funds own stakes in the company valued at $483.57 million.
Overall BILI ranks 5th on our list of best video game stocks to invest in. While we acknowledge the potential of BILI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BILI but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
