Key Points
- Gaming stocks have experienced better-than-expected performance this year and are poised for a strong holiday quarter.
- Institutions, including fund and investment managers, purchased Roblox in Q3 and Q4.
- Take-Two Interactive is tightly held with broad interest: it provided positive guidance, and its shares are trending upwards.
Roblox (NASDAQ: RBLX) and Take-Two Interactive (NASDAQ: TTWO) delivered strong Q3 reports, which is not surprising. The gaming industry has a dedicated following due to the release of new titles and expanding market penetration driving business. It’s no wonder that gaming stocks have garnered high institutional interest and are widely held by funds and money managers. Their activity stabilized the market over the past few quarters and positioned it for further growth.
Leading the pack is Take-Two Interactive, up approximately 45% YTD, but both are well-placed for potential gains. Take-Two is on the verge of a complete turnaround with strong technical signals pointing to upward movement. Meanwhile, Roblox is climbing from a solid support base, and the market is heating up.
The post-release action resulted in a significant price gap, closing the gap formed earlier this year and establishing new support at the upper boundary. With both moves backed by a substantial increase in volume, there’s a high likelihood that the market will continue the upward momentum and drive the price action to new highs.
Institutions, funds, and analysts own gaming stocks
Institutional activity in these gaming stocks has been mixed this year, with some net-selling earlier in the year, but overall trended bullish. Activity in Q3 and Q4 has been mostly bullish, including purchases from a wide range of investment groups.
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The stocks are widely held by funds, including Vanguard Group and BlackRock, as well as by state and local governments, retirement funds, and money managers. Collectively, they own about 90% of TTWO and 70% of RBLX stock, and their holdings are increasing. It’s evident that this activity aligns with the stabilization of price action and may intensify now that the Q3 results and guidance have been disclosed.
The Q3 reports demonstrated strength in both top and bottom lines and positive free cash flow. Roblox led with a 20% increase in net bookings compared to a -4% decline for TTWO, performing well for the period.
The distinguishing factor is that Roblox is gaining new customers and increasing its revenue per user, while Take-Two continues to face challenges. Roblox expanded its daily active users by 20% and compounded the growth with a 5% rise in revenue per monthly active user. However, Take-Two provided positive guidance, indicating that its rebound is just beginning with the upcoming holiday quarter. Roblox did not provide guidance but plans to start doing so in Q1 2024.
Analysts favor both stocks, but the trends indicate that Roblox’s price action is more favorable compared to Take-Two. Both stocks carry a Moderate Buy rating with a rising price target, but only Roblox’s sentiment is trending upwards. Roblox’s sentiment has been revised to Moderate Buy from Hold, with a target suggesting fair value near $39. There have been 2 boosted price targets in the 2 revisions tracked by Insidertrades.com since the report was released, with a consensus of $49, indicating about 25% upside from the current price action.
The technical outlook: higher share prices ahead
Shares of TTWO increased by 7% for the week, forming a solid green candle that confirms support at the $135 level. This aligns with a critical moving average crossover, complemented by the MACD and stochastic setup. These indicators are poised to confirm a bullish trend-following signal, coinciding with a larger head & shoulders reversal. In this scenario, the stock could soon surpass $155 and trend higher into the next year.
Roblox shares rose almost 10% for the week but are showing signs of resistance on the weekly chart. There is a potential risk of a market pullback from this point, but support on the daily chart is observable. If the market maintains support above $37, it could enter a consolidation phase with the possibility of a rally later this year. Under this scenario, RBLX could reach the upper end of its 2-year trading range by year-end.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|---|---|---|---|---|---|
| Take-Two Interactive Software (TTWO) | $146.32 | +2.0% | N/A | -20.07 | Moderate Buy | $149.88 |
| Roblox (RBLX) | $38.05 | -3.0% | N/A | -20.24 | Moderate Buy | $39.59 |
