Investors are interested in Riot Games because its massive multiplayer online game (MMOG) League of Legends had 115 million monthly players in July 2021, Leaguefeed estimates. The game is so popular that teams now compete in 12 international leagues for the annual League of Legends Championship.
Riot Games makes enormous amounts of money from League of Legends.
League of Legends generated $1.75 billion in revenue in 2020, Reuters estimates. League of Legends’ revenues rose from $1.5 billion in 2019 to $1.75 billion in 2020, Statista estimates. The highest League of Legends annual revenue was $2.1 billion in 2017.
One League of Legends variant Wild Rift generated $64.7 million on mobile devices between October 2020 and July 2021, PocketGamer.biz claims. Over 46.3 million people downloaded and played Wild Rift between October 2020 and July 2021. League of Legends is so popular, Netflix (NFLX) plans an animated series based on the game. The show Arcane could premier in 2021.
Riot Games Stock
You cannot buy stock in Riot Games directly because Riot Games is not a publicly listed company. You can buy stock in the company that owns Riot Games, Tencent Holdings ADR (OTCMKTS: TCHEY), as Riot Games is a subsidiary of Tencent Holdings.
Riot Games Stock Price
Riot Games does not have a stock price because the organization is not listed on any stock exchange. The owner of Riot Games, Tencent Holdings, does have a stock price of $62, which is 40% lower than its all-time high of $98, which was reached in February 2021.
Tencent Holdings’ stock price is down 40% this year because of mounting political pressure in the USA and continuing Chinese governmental crackdown on excessive technology firms profits.
Riot Games Stock Symbol
Riots Games’ stock symbol is the ticker of its parent company Tencent Holdings. In the USA. Riot Games trades under the symbol OTCMKTS: TCHEY. OTCMKTS means that the stock trades on the Over-The-Counter markets. Tencent stock also trades on the Stock Exchange of Hong Kong under the ticker 0700. HK.
Tencent, Epic Games & Riot Games Stock
Tencent’s ownership of Riot Games is in doubt. There is political pressure in the United States to force the China-based Tencent to sell Riot Games and a 40% stake in Fortnite developer Epic Games, The South China Morning Post reports.
The Committee on Foreign Investments in the United States is reviewing Tencent’s ownership of Riot Games and Epic Games. Some American politicians and intellectuals claim Tencent’s ownership of the games companies threatens national security.
Tencent is negotiating with the Committee to keep its American holdings. The United States comprises 26% of League of Legends’ mobile revenues, or $28 million, in the second quarter of 2021, Pocket Gamer Biz estimates.
Tencent/ Riot Games Stock Value
Tencent Holdings is one of the world’s largest social media and digital content companies.
Tencent’s largest subsidiary is the Chinese social media platform WeChat, or Weixin. Statista estimates WeChat had 1.242 billion users in the second quarter of 2021. TechCrunch claims 500 million people used WeChat’s search function each month in 2021. Tencent’s other social media solution, the instant messenger QQ, had 639 million Chinese users in March 2021, Statista estimates.
Tencent is one of the world’s largest fintech companies. TechCrunch estimates WeChat Pay processed 1.6 trillion yuan ($250 billion) in transactions in 2020. WeChat management claims 240 million people have used its “payments score” feature, which powers consumer credit solutions. WeChat’s enterprise or business version had 130 million active users in July 2021, TechCrunch estimates.
After Riot Games, Tencent’s most valuable American holding is its 40% stake in Epic Games. Epic Games claims its Fortnite MMOG had 350 million registered players in April 2020, GamesRadar reports. Epic claims 15.3 million people participated in Fortnite’s largest event on December 1, 2020.
Tencent Holdings makes money. The company reported quarterly revenues of $21.408 billion, a quarterly gross profit of $9.716 billion, and a quarterly operating income of $8.130 billion on June 30, 2021.
Growth is one of the principal attractions at Tencent Holdings. The company reported seven straight quarters of revenue growth between December 31, 2019, and June 30, 2021.
Tencent’s revenues grew by 32.08% in the quarter ending on June 30, 2021, and 34.56% in the quarter ending on March 31, 2021. Tencent’s revenues grew during the pandemic.
The debt also grew during the pandemic. Tencent’s total debts grew from $39.802 billion on June 30, 2020, to $45.057 billion on June 30, 2021.
The company is generating enormous amounts of cash. Tencent reported a quarterly operating cash flow of $5.077 billion and a quarterly ending cash flow of $21.953 billion on June 30, 2021.
The value of Tencent Holdings is enormous. It had Total Assets of $234.886 billion and $33.932 billion in cash and short-term investments on June 30, 2021.
Is Tencent Holdings (Riot Games) a Value Investment?
Many people might consider Tencent Holdings a value investment because of its low stock price, down 40% from its all-time high in February 2021. But this would be wrong. Stock Rover calculates the margin of safety for Tencent Holdings to be -17%, this means Tencent is still overvalued by 17% versus its future cash flow.
Tencent/Riot games Stock Dividend
Tencent Holdings (TCEHY) pays dividends, unlike other social media companies. TCEHY shares will pay an annual dividend of 0.6₵ on June 22, 2022. The Tencent dividend payout is inconsistent. The shares paid a 20.6₵ dividend on June 22, 2021. That dividend rose from 15.48₵ on June 15, 2020.
Tencent is not a reliable dividend stock because of the changing dividend.
Headwinds for Tencent/Riot Games Stock
The Chinese government is trying to restrict video game use. Reuters reports the National Press and Publication Administration limited MMOG play for people under 18 to three hours a week in August 2021. It is not clear if the restriction is enforceable, however.
The regulation forced Tencent to place restrictions on the time, and money children could spend on games such as Honor of Kings. Tencent executives claim they will work with authorities to comply with the regulations.
The restrictions could hurt Tencent because Honor of Kings was the world’s top-grossing game for most of 2021, CBS estimates. Sensor Tower estimates Honor of Kings generated over $2 billion in revenues in the first nine months of 2021.
The MMOG restriction is only the latest round in a growing conflict between tech companies and the Chinese government. Some Chinese officials fear the growing power of tech companies and want to restrict them.
Cynics, however, will wonder if the real motivation is to shake down tech companies for cash. The real motivation of Communist Party regulators could be cash rather than concern for China’s youth.
Tencent Holdings stock offers both high value and enormous risk. Investors who want to cash in on video games could make money with Tencent Holdings. Yet, the company’s base in China could limit future growth and revenues.
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3 Safer Investment Alternatives to Tencent/Riot Games
Today’s stock market offers many excellent alternatives to Riot Games and Tencent Holdings. One advantage to these alternatives is they are American companies that are less vulnerable to the growing tensions between the United States and China.
Considering Tencent Holding’s stock price is 40% lower in 2021 and the company’s headwinds both at home in China and in the USA, you would be best advised to choose better gaming stocks in which to invest. Here are three great alternatives.
Other advantages are that these companies trade on US stock exchanges. Some of the best alternatives to Riot Games include:
Activision Blizzard Inc. (NASDAQ: ATVI)
Activision Blizzard owns several of the world’s most popular game franchises. The most prominent Activision game is World of Warcraft (WOW). The world’s most famous massive multiplayer online game (MMOG).
Activision estimates that World of Warcraft had around 26 million players in the second quarter of 2021, Iven Global reports. World of Warcraft’s player count fell from 46 million in the second quarter of 2017.
Another popular Blizzard title Overwatch had 7.154 million active players in the 30 days ending on October 4, 2021, Activeplayer.io estimates. EsportsTalk estimates Activision’s Call of Duty: Warzone had 100 million players in April 2021.
Activision Blizzard’s incredibly popular mobile game Candy Crush had 273 million monthly active users, Business of Apps estimates. Candy Crush generated $1.19 billion in revenues in 2020, Business of Apps estimates. Business of Apps calls Candy Crush the third highest-grossing mobile game outside of China and the sixth highest-grossing game of all time.
Activision Blizzard makes money from games. It reported a quarterly gross profit of $1.741 billion, a quarterly operating income of $959 million, and quarterly revenues of $2.296 billion on June 30, 2021.
Blizzard is growing. Its quarterly revenues grew from $1.929 billion on June 30, 2020. The quarterly profit grew from $1.46 billion on June 30, 2020, and the quarterly operating income grew from $749 million on June 30, 2020.
Activision has a high rate of growth. Stock Rover Research shows that Activision had five straight quarters of double-digit revenue growth between June 30, 2020, and June 30, 2021. Blizzard’s revenues grew by 38.18% in the quarter ending on June 30, 2020, and 19.03% in the quarter ending on June 30, 2021.
Activision Blizzard can generate enormous amounts of cash. The company reported a quarterly ending cash flow of $9.287 billion on March 31, 2021. The quarterly ending cash flow fell to -$64 million on June 30, 2021.
The financial data shows Activision Blizzard generates enormous amounts of cash. Activision reported a quarterly operating cash flow of $388 million on June 30, 2021. The quarterly operating cash flow fell from $768 million on June 30, 2020. Blizzard’s cash and short-term investments grew from $6.338 billion on June 30, 2020, to $9.625 billion on June 30, 2021.
Activision’s value grew during the pandemic. The total assets grew from $20.22 billion on June 30, 2020, to $23.572 billion on June 30, 2021. I think Activision Blizzard shows that games are a value investment and a growing cash-rich industry.
Another attraction at Activision Blizzard is its modest share price. Mr. Market paid $77.06 for Activision shares on October 4, 2021. Stock Rover Research estimates that Activision Blizzard is extremely undervalued, with a Margin of Safety of +32%.
I think Activision offers growth, cash, and value for a modest stock price. I believe the company has a high margin of safety because it has more cash and an American address.
Activision Blizzard also pays a growing dividend. The annual dividend grew from 37₵ on May 9, 2019, to 41₵ on May 6, 2020, to 47₵ on May 6, 2021. They have scheduled a 52.5₵ dividend for May 6, 2022. Activision shares offered a 47₵ forward dividend and a forward dividend yield of 0.6% on October 4, 2021.
Those seeking a cheap and safe alternative to Tencent Holdings need to investigate Activision Blizzard. I think Activision Blizzard could be one of the best stocks in the gaming sector.
Apple Inc. (AAPL)
Most people will not consider Apple a games company. However, games data platform Newzoo ranks Apple as the third-largest games company by revenue, after Tencent Holdings and Sony.
Newzoo estimates Apple generated $3.758 billion in games revenue in the fourth quarter of 2020. Activision Blizzard generated $2.108 billion in games revenue, and Tencent Holdings generated $7.182 billion in games revenue in the fourth quarter of 2020.
Apple generates revenue by selling games through its App Store. The Wall Street Journal estimates Apple made $8.5 billion in annual operating profits from gaming and $10.95 billion in App Store gaming revenues in 2019. The App Store gaming revenues grew to $13.54 billion in 2020.
Apple’s gaming subscription service, Apple Arcade, generated $17.49 billion in net sales for the quarter ending on June 26, 2021. These figures show Apple generates enormous amounts of float from games.
Float is the term Warren Buffett uses to describe the cash companies receive from regular subscriptions. Buffett used the float from insurance premiums, utility payments, and newspaper subscriptions to build Berkshire Hathaway.
According to CNBC estimates, Berkshire Hathaway (NYSE: BRK.B) owned 907.56 million shares of Apple on June 30, 2021. CNBC estimates Berkshire owned a 5.5% stake in Apple Inc on June 30, 2021.
I think one reason Berkshire Hathaway owns so much Apple is the float the company generates from games. Buffett owns Apple because it generates enormous amounts of cash. Gaming is now a value investment that even Warren Buffett likes.
One attraction for Buffett at Apple is the quarterly operating cash flow reported on June 30, 2021. The quarterly operating cash flow rose from $16.271 billion on June 30, 2020, and fell from a high of $38.763 billion on December 31, 2020.
Apple reported a $37.719 billion quarterly ending cash flow on December 31, 2020. The quarterly ending cash flow fell to -$4.73 billion on June 30, 2021.
Apple had $61.696 billion in cash and short-term investments on June 30, 2021. The cash and short-term investments fell from $93.054 billion on June 30, 2020. Apple is a cash-rich company.
Apple experienced dramatic revenue growth during the pandemic. The quarterly revenues grew from $59.415 billion on June 30, 2020, to $81.494 billion on June 30, 2021. Stockrow estimates Apple’s revenues grew by 37.16% in the quarter ending on June 30, 2021.
The revenue growth translated into more money for Apple. The quarterly gross profit grew from $22.048 billion on June 30, 2020, to $35.416 billion on June 30, 2021. Apple’s quarterly operating income grew from $13.091 billion on June 30, 2020, to $24.126 billion on June 30, 2021.
The value of Apple grew during the pandemic. Apple’s total assets grew from $317.344 billion on June 30, 2020, to $329.84 billion on June 30, 2021.
Stock Rover Research estimates that Apple is still undervalued with a Margin of Safety of +23%.
Another reason Buffett likes Apple is the dividend. Apple paid a 22₵ quarterly dividend on August 12, 2021. They have scheduled four 22₵ Apple quarterly dividends for the rest of 2021 and 2022.
The Apple quarterly dividend grew from 20.5₵ on February 11, 2021. Apple shares offered a forward annual dividend of 88₵ and a forward yield of 0.63% on October 5, 2021.
One advantage to Apple is that it does not own the games. Apple makes money no matter what games are popular because many players access the games through Apple devices. CEO Tim Cook claimed there were 1.65 billion Apple devices, including over one billion active iPhones, worldwide in January 2021.
That means Apple makes money no matter what game is popular. If Fortnite’s popularity collapses, Apple will profit from whatever game replaces Fortnite as the fan-favorite. Apple offers a high margin of safety because it is immune to the changing tastes of players and fads.
I consider Apple the best alternative stock to Riot Games because of the dividend and the enormous amounts of cash the company generates. Those seeking an alternative to Tencent Holdings need to investigate Apple (AAPL).
Take2Interactive Software Inc. (NASDAQ: TTWO)
Other game publishers to investigate include Take2games. Take2 publishes games based on many licensed properties, including the National Basketball Association (NBA) and Marvel Superheroes.
Take2 owns Rockstar Games, which publishes the legendary games franchises Grand Theft Auto and Red Dead Revolver. Grand Theft Auto is one of the most lucrative game franchises of all time. Statista estimates Grand Theft Auto V had 214,900 concurrent players on Steam in August 2021. Tweak Town estimates that Grand Theft Auto V generated over $6.4 billion in sales between September 2013 and August 2021.
Take2 Interactive makes some money from its games. The company reported $813.35 million in quarterly revenues, a quarterly gross profit of $480.94 million, and a quarterly operating income of $170.47 million on June 30, 2021.
Take2’s revenues are shrinking. The quarterly revenues fell from $831.31 million on June 30, 2020. Stockrow estimates Take2’s revenues shrank by 2.16% in the quarter ending on June 30, 2021.
Take2 made more money over the past year. The quarterly gross profit grew from $361.90 million on June 30, 2020, and the quarterly operating income grew from $82.14 million on June 30, 2020.
Take2’s financial numbers show games are not steady generators of cash. Its’ quarterly operating cash flow fell from $445.42 million on June 30, 2020, to $148.24 million on June 30, 2021.
Take2 still generates enormous amounts of cash. The quarterly ending cash flow went from $2.161 billion on June 30, 2020, to $2.157 billion on June 30, 2021. The cash and short-term investments grew from $2.753 billion on June 30, 2020, to $3.1989 billion on June 30, 2021.
There are some good signs at Take2 Interactive. The company has little debt. It reported a Total Debt of $188 million on June 30, 2021. During the pandemic, the debt grew slightly from $182 million on June 30, 2020.
Take2 survived the pandemic without borrowing. It reported six quarters of negative financing cash flows between March 31, 2020, and June 30, 2021.
I think Mr. Market Overpriced Take2 Interactive (TTWO) shares at $164.93 on October 6, 2021. I see nothing in Take2’s financial data that justifies that share price.
Stock Rover Research estimates that Take2 Interactive is overvalued with a Margin of Safety of -13%, meaning TTWO is not expected to generate enough cash flow to justify its current stock price.
Take2 shares pay no dividend, unlike Apple and Activision Blizzard. Yet, its shares were more expensive than those stocks on October 6, 2021.
Riot Games’ owners Tencent Holdings, Activision Blizzard, and Apple show that games are a value investment in today’s world. Games are a value investment because they can generate enormous amounts of cash and revenue in today’s world. Investors who like cash need to investigate games because games generate cash in today’s world.
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