The Zacks Gaming industry benefits from macroeconomic tailwinds and strong demand for sports betting. The industry is experiencing an upside, thanks to increased visitation and spending per visit, especially from younger demographics. Stocks like Flutter Entertainment plc FLUT, GameStop Corp. GME and GDEV Inc. GDEV will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across the lotteries, electronic gaming machines, sports betting and interactive gaming markets. Some firms develop and operate gaming establishments and associated lodging, restaurants, horse racing and entertainment amenities. Many companies are involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Interest Rate Cuts to Aid Gaming Industry: In 2024, the Fed cut the interest rate three times, totaling 150 basis points. The Fed also hinted at two more cuts in 2025. Most gaming companies rely on debt to finance their operations, expansion projects and renovations. A reduction in interest rates lowers the cost of borrowing, allowing gaming companies to take on new loans or refinance existing debt at more favorable terms. This can free up capital for growth initiatives and reduce interest expenses.
Macau Gaming Revenues Improve: Macau's gross gaming revenue (GGR) rose 23.9% year over year in 2024, reaching MOP$226.8 billion (approximately US$28.3 billion). This marks the second consecutive year of robust recovery since the city reopened its international borders in January 2023. The 2024 GGR represents a rebound to 77.5% of the pre-pandemic levels achieved in 2019. This recovery occurred in a more streamlined operating environment for casino concessionaires, largely free from the burden of paying junket commissions. Casino operators are adopting a disciplined operational strategy by streamlining business processes, enhancing marketing approaches, and renegotiating contracts with vendors and third parties. There is an intense emphasis on improving service quality and staffing levels to cater to gamers better.
US Commercial Gaming Revenues Robust: In October 2024, U.S. commercial gaming revenues increased 1.9% year over year, marking the industry's 44t h consecutive month of annual growth. Data from state regulators, compiled by the American Gaming Association, revealed that revenues from traditional casino games, sports betting and iGaming totaled $5.81 billion, setting a monthly record for October. For the first 10 months of 2024, commercial gaming revenues reached $59.11 billion, reflecting a 7.3% rise from the prior-year period.
Sports Betting Acts as Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Bettors can place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and Bet Monarch.
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Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #74, which places it in the top 30% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential.
We will present a few gaming stocks that you can add to your investment portfolio, given their strong fundamentals. However, it is worth looking at the industry's shareholder returns and current valuation first.
Industry Underperforms the S&P 500
The Zacks Gaming industry has lagged the S&P 500 Index and the broader Zacks Consumer Discretionary sector in the past year.
The industry has risen 22.4% over this period compared with the S&P 500 Index's growth of 24.8%. In the same time frame, the sector has rallied 12.6%.
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 16.64. The space is trading at a discount compared with the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 24.69.
In the past five years, the industry has traded as high as 19.34X and as low as 7.85X, with a median of 11.69X, as the chart below shows.
3 Gaming Stocks to Watch
GameStop: The company has been progressing well with its growth endeavors while maintaining a solid balance sheet. It has been taking initiatives to diversify its business and become a more technology-driven firm. GameStop has also been pursuing opportunities in cryptocurrency, non-fungible tokens and Web 3.0 gaming verticals.
This Zacks Rank #1 (Strong Buy) player's shares have gained 57.6% in the past three months. GME's 2025 earnings estimates have skyrocketed 200% to 18 cents in the past 60 days. You can see the complete list of today's Zacks #1 Rank stocks here.
GDEV: The company's refined vision, which emphasizes sustainable growth and operational efficiency, bodes well. Its focus on delivering top games, coupled with the recruitment of industry talent, supports its commitment to creating exceptional player experiences and solidifying its market position for long-term success.
Shares of this Zacks Rank #1 player have declined 29.8% in the six months. GDEV's 2025 earnings estimates have increased to $1.36 from $1.79 in the past 60 days.
Flutter Entertainment: The company continues to benefit from the focus on technological advancements, product innovation and market share gains. Continued investment in customer acquisition while maintaining disciplined payback targets bode well for the company. FLUT is confident in achieving a long-term gross revenue margin target of 16% through sustained operational improvements.
This Zacks Rank #2 (Buy) company's shares have gained 6.3% in the past three months. Its earnings estimates for 2025 have grown to $7.55 from $8.07 in the past 60 days.
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Flutter Entertainment PLC (FLUT) : Free Stock Analysis Report
GameStop Corp. (GME) : Free Stock Analysis Report
GDEV Inc. (GDEV) : Free Stock Analysis Report
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