NTDOY - Roblox vs. Nintendo: Which Video Game Stock is a Better Buy?

Nintendo Co., Ltd. (NTDOY) and Roblox Corporation (RBLX) are two of the top established players in the video gaming industry. RBLX is a platform for 3D creation, publishing, and gameplay. It offers game developers Roblox Client, an application for 3D digital development, and Roblox Cloud, a solution that powers the human co-experience platform. NTDOY is involved in the production of entertainment products. As one of the most popular companies in the video games industry, NTDOY’s main products include game machines such as portable and console game machines and software, as well as trump cards.

The video gaming industry has gained traction over the past year, driven by remote working and social distancing trends. While people are now engaging in outdoor activities with the reopening of the economy, the video gaming industry isn’t expected to lose its luster anytime soon. In fact, the global video game market is expected to grow at a CAGR of 11% over the next four years.

While RBLX has gained 24% over the past month, NTDOY has returned 8.3%. But which of these two stocks is a better buy now? Let's find out.

Latest Movements

RBLX made its stock market debut on March 10 through a direct listing on the NYSE. Shares of RBLX closed at $69.50 on its first trading session, representing a 54.4% rise from the reference price of $45 set by the NYSE.

On March 23, 2021, Niantic Inc. and NTDOY partnered to jointly develop apps leveraging Niantic's real-world AR technology with NTDOY’s existing gaming characters. This should allow NTDOY to improve its gaming graphics as well as enter the augmented reality industry.

Recent Financial Results

RBLX’s revenue increased 139.5% year-over-year to $387 million for the first quarter that ended March 31, 2021. The company’s operating loss came in at $135.10 million, representing a decline of 85.1% from the prior-year period. Its net loss came in at $134.21 million, down 80.5% from the year-ago period. Its loss per share came in at $0.46, down 4.5% year-over-year.

For the fourth quarter last year, NTDOY’s sales came in at ¥1.80 billion ($16.40 million), which represents an 34.3% increase from the prior-year quarter. The company’s gross profit increased 51.2% from the same period last year to ¥970.50 million ($ 8.83 million). Net profit for the quarter came in at ¥480.42 million ($ 4.37 million), up 85.7% year-over-year.

Past and Expected Financial Performance

RBLX’s revenues and EBITDA increased 105.8% and 165.9% year-over-year, respectively. The company’s EPS improved 84% from the year-ago value. RBLX’s revenue is expected to increase 153.3% for the quarter ending September 30, 2021 and 183% in fiscal 2022. The company’s EPS is expected to decline 0.5% in fiscal 2021, and increase 0.8% in fiscal 2023. Also, RBLX’s EPS is expected to grow at a rate of 1.1% per annum over the next five years.

Comparatively, NTDOY’s revenues increased 34.4% year-over-year, while its EBITDA improved 80% year-over-year. Its EPS rose 85.7% year-over-year. Analysts expect NTDOY’s revenues to decrease 99.9% in fiscal 2022. Its EPS is expected to grow 2.3% in fiscal 2022. However, its EPS is expected to decline at a CAGR of 211.5% over the next five years.

Profitability

NTDOY’s trailing-12-month revenue of $15.88 billion is 13.81 times higher than RBLX’s $1.15 billion. NTDOY is also more profitable with a gross profit margin of 55.17% versus RBLX’s 12.56%.

Moreover, NTDOY’s EBITDA margin of 37.04% compares favorably to RBLX’s negative value.

Valuation

In terms of forward EV/Sales, RBLX is currently trading at 20.93x, 82.2% higher than NTDOY’s 3.72x. In terms of forward EV/EBITDA as well, RBLX’s 85.77x is 89% higher than NTDOY’s 9.41x.

So, NTDOY is the more affordable stock.

POWR Ratings

NTDOY has an overall grade of B which equates to a Buy rating in our proprietary POWR Ratings system. However, RBLX has an overall grade of C, which represents a Neutral rating. The POWR Ratings are calculated by taking into account 118 different factors with the weighting of each optimized to improve overall performance.

RBLX has a C grade for Quality. This is justified, given its negative net income margin, ROE, and ROTC. On the other hand, NTDOY has an A grade for Quality. The company’s trailing-12-month net income margin of 27.31% is 776.1% higher than the industry average of 3.12%, in sync with its Quality grade.

RBLX has a grade of D for Value. This is justified, as its non-GAAP forward P/E of 113.25x is 456.3% higher than the industry average of 20.36x. Comparatively, NTDOY has a grade of C for Value, in sync with its slightly higher valuation with respect to its peers.

Of the 23 stocks in the Entertainment-Toys & Video Games industry, RBLX is ranked #16 and NTDOY is ranked #5.

In addition to the grades I’ve just highlighted, we rated both RBLX and NTDOY for Momentum, Growth, Sentiment and Stability. Click here to see the additional ratings for NTDOY. Also, get all of RBLX’s ratings here.

The Winner

The demand for video games is expected to continue its traction, given the rising popularity of Augmented Reality (AR) and hybrid work culture. While both NTDOY and RBLX are expected to benefit from the industry’s growth potential, NTDOY seems to be a better buy now, thanks to its relatively lower valuation and higher profitability.

Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the Entertainment-Toys & Video Games industry.

NTDOY shares were trading at $75.72 per share on Tuesday morning, down $1.60 (-2.07%). Year-to-date, NTDOY has declined -5.96%, versus a 12.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.

More...