Move on, AMC! 3 stocks that could turn $ 10,000 into $ 50,000 over the next decade

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Going to the movies will probably always be on the to-do list at a night out. But the pandemic decimated the industry in 2020, dropping global revenues by 71%. The need to stay at home has boosted sales of another popular business – video games – old movies and music combined.

Despite the trends, traders have fallen in love with the theater chain AMC Entertainment (NYSE: AMC) earlier this year. A combination of an economic recovery and motivating traders to burn those who bet against the stock has fueled a rally lifting stocks by 2,000% this year.

Image source: Getty Images.

It’s an interesting sight, but there are more reliable ways to increase your investment in the entertainment industry. That’s why we asked three Fool.com contributors what stocks they think could quintuple over the next decade. They have chosen Unity software (NYSE: U), Skillz (NYSE: SKLZ), and Ubisoft Entertainment (OTC: UBSFY). Here’s why.

The engine behind the gaming industry

Jason Hawthorne (Unity software): Unity is somewhat unique in the video game industry. First, it’s not just about video games. The company’s real-time three-dimensional (RT3D) software is used by architects to quickly iterate building designs and detect faults. It has similar uses in automobile manufacturing. In the film industry, this cuts the time for creating and editing digital scenes from days to seconds. But it is a market leader in game development.

An astonishing 94 of the top 100 video game developers are Unity customers. In Q4 2020, 71% of the top 1,000 mobile games were made with the company’s RT3D software. This has resulted in sales growth of 42% in 2019 and 2020. So far in 2021, revenue has grown 45% year over year. It’s not profitable, but Unity’s management is committed to becoming profitable on an adjusted basis in 2023. Over the long term, they believe they can maintain revenue growth above 30%. This time horizon could be very far away in more than one way than you think.

One of the most futuristic use cases for Unity’s RT3D software is to help create the metaverse – an all-digital world beyond the analog that we live in. Most define it as a version of Internet life. Others simply define it as a perpetual increase in our existing reality. Either way, management believes it will be hundreds of thousands of destinations created by companies like Roblox, Nvidia, Facebook, and Adobe. Unity intends to be a major player in its creation and operation, and it is perfectly positioned.

Unity is at the center of a powerful trend in entertainment. And he has a clear pole star. The company believes in reducing the distance and friction between creators and consumers. Succeeding on this front in the real and virtual world should lead to a winning investment for shareholders.

A ripe opportunity for picking

Jon Quast (Skillz): Skillz is a mobile gaming platform that allows developers to monetize their games without running ads. It also allows users to compete for cash prizes. The company owns 447.2 million fully diluted shares and the share is trading at around $ 11 per share at the time of writing, putting its fully diluted market cap at $ 4.9 billion. Therefore, if Skillz quintuple in the next decade, he would have a market cap of almost $ 24.6 billion. Here’s why it’s entirely possible, but also why things could go wrong.

First, consider the size of the mobile gaming market. Skillz estimates the market at $ 86 billion. Third-party research firm Newzoo estimates it even higher, at nearly $ 91 billion. Regardless, Skillz barely scratches the surface of its opportunity – it only had $ 1.6 billion in gross market volume in 2020. Additionally, mobile gaming is the only segment of the industry. of the game that is growing, according to Newzoo.

Consider two ways Skillz can increase his slice of the pie. First, the company lacks the technology to deliver synchronous games, a capability required for a variety of game genres. But it only took a stake in synchronous game leader Exit Games to accelerate development. Once it can offer this technology to developers, expect its game library to grow significantly.

Second, Skillz can expand internationally. The company is launching in India this year. According to Statista, the Indian market was only worth $ 2.4 billion in 2020, but it has grown 50% year over year and has more than doubled in just two years. Skillz plans to take advantage of this fast growing market and will look to other international markets in 2022 as well.

Moreover, Skillz does not only intend to increase its room of the pie, he actively expects to grow the pie itself. Much has been written about the company’s partnership with the National Football League. But I would like to stress that this is not so much about games as it is a creative way for a brand to engage its audience. Going forward, Skillz expects all brands to develop competitive interactive platforms, thereby increasing the overall gaming opportunity. Skillz management is talking about this holistically, saying they are building “the competition layer. Internet “.

Skillz should have no problem growing their user base significantly over the long term. And yet he is in trouble. This is for me the biggest red flag for the company. The following table shows what its user metrics have looked like since the company went public.

Metric Q3 2020 Q4 2020 Q1 2021 Q2 2021
Monthly active users 2.7 million 2.4 million 2.7 million 2.4 million
Pay monthly active users 346,000 391,000 467,000 460,000

Data source: Skillz. Chart by author.

The big picture is that Skillz has spent almost $ 350 million on sales and marketing in the past 12 months. But it only added 114,000 paid users and lost 300,000 active users. Maybe competitive mobile gaming isn’t as big an opportunity as it first appears – or maybe it’s just a temporary hiccup. Either way, if Skillz is to be a five-fold investment over the next decade, user growth has to start constantly moving in the right direction.

This outsider could crush expectations

Keith Noonan (Ubisoft Entertainment): If you ask 100 investors to name the best company in the video game industry, you might not have too many people naming Ubisoft. The France-based game publisher has shown relatively uneven performance in recent years, and it is generally lagging behind Activision Blizzard and Take-Two Interactive when it comes to sales and profits. While it’s hard to argue that Ubisoft is positioning itself as the number one player in the industry, it could still become one of the top video game stocks.

Best known for franchises including Assassin’s Creed, rainbow six, and Ghost recognition, the company appears to be attractively valued relative to many other players in the gaming space. The stock is now down around 31.5% year-to-date, and it’s trading down by 41% over the past three years.

Ubisoft has a collection of bankable franchises and a stable of proven development and marketing teams. It is also valued at less than 15 times the median operating profit target of 2021. It is good that this is not a year of exit from the banner for the company. Ubisoft has seen some key titles underperform over the past few years, and it seems to be going through a phase of reinvention. However, the company still has significant resources and should be able to return to much better growth if it has quality versions and takes advantage of growth opportunities in mobile.

These characteristics also make the company a potential acquisition and could help set a floor price on the stock. This limits the downside risk. Video game companies have been prime targets of acquisitions over the past year because their software commands levels of engagement that outperform just about any other entertainment medium and because the industry continues to have strong holdings. good long-term growth prospects. With stocks valued at low prices and offering a steep rise, Ubisoft has what it takes to serve a victory for shareholders.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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