Video games continue to be the fastest growing segment of the entertainment industry. Worldwide revenue generated from the sale of video games is forecast to reach nearly $400 billion in 2023, and to grow more than half a trillion dollars by 2027. In addition, the number of people who regularly play video games has surpassed three billion users, representing about one-third of the global population.
The popularity of video games continues to explode around the world as the technology and graphics improves. Consequently, this presents a big growth opportunity for video game makers and their shareholders.
However, not all video game companies are likely to survive in coming years. Some video games and their stocks are at risk of disappearing through acquisitions, consolidation, or mismanagement. Here are three doomed gaming stocks destined for disaster.
We’ll begin with the continuing elephant in the room, video game retailer GameStop (NYSE:GME). Operating a brick-and-mortar retail chain in an age of digital downloads, GameStop is arguably the worst gaming stock available to investors.
The litany of bad news to recently hit the company includes the firing of CEO Matthew Furlong. Also, abysmal quarterly results included a 10% year-over-year revenue decline and a $50 million net loss. GameStop’s U.S. sales fell 16.4% from a year earlier during its most recent quarter.
GameStop’s board of directors has only five remaining members, including chair Ryan Cohen. The Canadian entrepreneur and founder of Chewy (NYSE:CHWY) continues to be a polarizing figure in the investing community.
Also, almost no analysts bother to cover this former meme stock darling. Currently only two analysts offer price targets on GME stock. With its efforts to become an e-commerce concern largely failing, GameStop’s share price has been slumping. It’s fallen 25% over the last 12 months. Trading in the stock remains volatile and erratic, making this a gaming stock to avoid.
Activision Blizzard (ATVI)
The path towards Microsoft (NASDAQ:MSFT) taking control of Activision Blizzard (NASDAQ:ATVI) in a $68 billion acquisition has gotten clearer now that U.S. District Court Judge Jacqueline Scott Corley has ruled. She rejected the U.S. Federal Trade Commission’s (FTC) assertion that the deal will hurt consumers by giving Microsoft exclusive access to best-selling video games such as Call of Duty. However, the agreement that will see Microsoft pay $95 a share for ATVI stock hasn’t been finalized.
Concerns remain that Microsoft could make Activision’s popular video games exclusive to its Xbox console. Microsoft has sought to address these issues by promising to provide access to Call of Duty and other titles to rival video game consoles for the next 10 years. The outcome of the Activision purchase is still uncertain.
The current hurdle is England’s Competition and Markets Authority (CMA). It initially rejected the deal but now says it may reconsider Microsoft’s proposals to resolve its antitrust concerns. The lack of clarity has left ATVI stock in limbo. Perhaps a bigger question is what happens to Activision Blizzard stock if the Microsoft deal ultimately does not go through as planned?
Electronic Arts (EA)
An ongoing concern since the dawn of the personal home computer age, Electronic Arts today makes several popular games, including The Sims, Medal of Honor, and Mass Effect. Further, the company also has a virtual monopoly on sports video games through recurring annual titles such as FIFA Soccer, Madden NFL, and NBA Live.
Given the pedigree of its game titles, one would assume that EA stock would be a winner. Yet, that hasn’t rung true. Inflation, higher interest rates, and weak consumer spending have hurt the company’s earnings.
EA most recently reported a quarterly net loss of $12 million, or five cents per diluted share, which represented a 105% year-over-year decline. Electronic Arts is scrambling to right its ship, announcing plans to launch a college football video game title later this year. However, it’s unclear if the company can turn things around over the long-term.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.