Game Stocks and Metaverse Mergers Could Come to Canada

Here’s why recent game stock mergers and metaverse investments could come to Canada soon. 

| More on:
gaming, tech

Image source: Getty Images

The size of the video game industry is tragically underappreciated. Online games and virtual content generate more revenues than film, music, and podcasts across the world. Titles such as World of Warcraft and FIFA generate billions of dollars in recurring revenue. The industry becomes more intriguing when you consider how tech giants are focused on creating the metaverse

Here’s why recent game stock mergers and metaverse investments could come to Canada soon. 

Game stock mergers

The global video game industry is significantly fragmented. Small indie developers have intellectual property that generates billions in revenue, while mega-corporations from Japan and South Korea actively compete with tech companies in North America. 

Unsurprisingly, tech giants have started to consolidate the industry in recent months. Microsoft announced a deal to acquire Activision, while Sony is about to acquire Bungee. Take-Two Interactive purchase Zynga, while the New York Times just completed a deal to takeover Wordle. 

This means small- and mid-sized game developers or service providers are now acquisition targets. Canada has plenty of indie game developers, but I believe esports media giant Enthusiast Gaming (TSX:EGLX)(NASDAQ:EGLX) could be an ideal acquisition target. 

Enthusiast stock has given up 75% of the gains and remains under immense selling pressure. With the stock marked down while fundamentals improve, Enthusiast Gaming could be on the radar of some rival media giant or tech company looking to horizontally integrate. 

Improving fundamentals

Improving underlying fundamentals could be the catalyst to trigger a bounce back after last year’s implosion. Enthusiast gaming operates in some of the fastest-growing segments of media content entertainment and eSports in North America. The industry’s organic growth is reflected on its books. 

The company’s core advertising business is doing much better than initially feared. For starters, the company posted 165% year-over-year growth in revenue in Q3 to $43.3 million. Its gross profit also jumped 146% to $10.1 million.

The company generates most of its revenue from selling advertising space across more than 100 websites. Strength in direct sales and acquisitions among other casual games for desktop and mobile devices affirms the brand’s strength.

The 85% increase in paid subscribers to 107,000 as of September might also signal that the company’s products are resonating well with customers. Growing traffic affirms Enthusiast’s growing popularity among the Gen Z and millennial audience.

Gaming media’s outlook

As gaming continues to take a bigger share of the overall internet traffic, Enthusiast Gaming remains well positioned to generate significant revenue, as it is home to the second most visited gaming property.

Following the recent selloff to two-year lows, Enthusiast Gaming is trading at a great discount relative to underlying growth. While the stock is under pressure, the prospect of a bounce back from recent lows is high. However, an acquisition could be the real catalyst that unlocks value for shareholders. That’s why this gaming stock should be on your radar. 

Bottom line

Growing interest in the metaverse and the fragmented nature of the gaming industry makes it fertile ground for acquisitions. Enthusiast Gaming could be an ideal target. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Vishesh Raisinghani owns Take-Two Interactive. The Motley Fool recommends Microsoft and Take-Two Interactive.

More on Tech Stocks

Piggy bank next to a financial report
Tech Stocks

TFSA Contribution in 2023: Where to Invest $6,500 Right Now

Here's why you need to consider buying NBLY stock and Docebo stock for your TFSA portfolio in 2023.

Read more »

A bull outlined against a field
Tech Stocks

3 Cheap Stocks I’d Buy in Bulk Before a Bull Market Arrives

After a hot start to the year, here are three discounted TSX stocks that I’d seriously consider loading up on…

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Better Buy: Shopify vs. Constellation Software

Are you interested in buying a tech stock? Find out which is the better buy between Shopify and Constellation Software.

Read more »

Woman has an idea
Tech Stocks

3 No-Brainer Stocks to Buy for Less Than the Cost of 1 Tesla Share

Are you confused as to whether to buy Tesla shares? Here are three no-brainer stocks that can give you exposure…

Read more »

Tech Stocks

1 Under-the-Radar Beneficiary From the Rise of ChatGPT

ChatGPT will benefit AI-enabled stocks like Docebo (TSX:DCBO).

Read more »

Businessman holding AI cloud
Tech Stocks

TFSA: 2 AI Growth Stocks for Your $6,500 Contribution

Here are two of the best AI stocks to buy in Canada in 2023.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

The Best Stocks to Invest $50,000 in Right Now

You can create a portfolio of undervalued stocks with $50,000 right now. Here are three such stocks you can add…

Read more »

Tech Stocks

The Safest Semiconductor Chip Stocks to Own in March 2023

Canadians can invest in two safe semiconductor chip stocks, as the country prepares to expand its industry presence and become…

Read more »