Buy These 3 Stocks To Profit From 'Fortnite Battle Royale'

Shares of Funko FNKO surged in morning trading Wednesday after the company reached a deal with Epic Games to produce a number of Fortnite-branded toys and collectibles, including figures using Funko’s famed Pop! product style.

Investors were excited about the opportunity to gain exposure to Fortnite, a massively-popular, multi-platform video game released in 2017. Fortnite is best known for its Fortnite Battle Royale game mode, which sees up to 100 online players fighting to be the last person standing in an increasingly-smaller playable space.

Fortnite helped popularize the battle royale format and is one of a growing number of games built on a free-to-play model. Basic access to the game is completely free, but Epic Games cashes in on its huge user base by offering an in-game currency which can be used to buy cosmetic items and rewards.

This freemium model means that Fortnite is accessible to gamers of all types, and that has helped the title rack up more than 125 million worldwide users. The game has also developed a sizeable competitive scene, with pro-level players dueling it out for large cash prizes.

Experienced investors know that a large user base and growing monetization efforts create a winning combination for young trends. But which stocks are set to benefit from the budding Fortnite market? Let’s take a look at three potential options.

1. Funko

Funko’s deal with Epic Games is a huge opportunity for the toy maker, which probably had to fend off competition from industry titans like Hasbro HAS and Mattel MAT to land the agreement. The company will now be the first to release official Fortnite toys, giving it first-mover advantage on what could be a lucrative market.

“We are thrilled to collaborate and partner with Epic Games to create the inaugural Fortnite product collection and to bring these characters to life for the first time,” said Funko CEO Brian Mariotti.

Those familiar with both Fortnite and Funko are likely to conclude that the partnership makes sense, as Funko’s existing designs match Fortnite’s cartoonish animation style. Plus, the collection will be out before the holidays, giving both brands the best chance at benefitting.

Interestingly, Funko was already sporting a Zacks Rank #2 (Buy) heading into the day. Earnings estimates have trended upward recently, and analysts appear to be in agreement that this year will be a period of huge EPS growth for the company.

Current projections are calling for Funko’s adjusted profits to improve by nearly 73% in 2018. The stock has already notched 135% gains on the year, and investors can expect that momentum to continue as analysts revise estimates higher to reflect increased demand from Fortnite products.

 

2. Tencent (TCEHY)

Tencent is a Chinese tech behemoth which operates social networks, music services, web portals, e-commerce platforms, mobile games, and other internet outlets. The firm is best known for WeChat, a hugely-popular messaging application throughout China and other key Asian markets.

Since 2012, Tencent has owned a 40% in Epic Games. The investment was made as Epic Games began transitioning to its current “games-as-a-service model,” which mimics the structure of the cloud computing business.

It is also worth noting that Epic Games has been—and will continue to be—a valuable asset for Tencent outside of just Fortnite. The game studio has been a major presence in the industry since it developed the Unreal Engine in the late 90s, and it gives Tencent a key footprint in America.

TCEHY is currently holding a Zacks Rank #2 (Buy). Like many Chinese tech stocks, Tencent remains an aggressive growth play, with earnings and revenue expected to improve by 32% and 52%, respectively, in 2018. Tencent also boasts a long-term expected EPS growth rate of 30.5%.

 

3. Turtle Beach (HEAR)

Turtle Beach is a leading designer of headsets for gamers. Recently, D.A. Davidson analyst Tom Forte described Turtle Beach as the “dominant player in the global console headset market”—a market which has seen renewed investor interest because of Fortnite.

In fact, HEAR has witnessed staggering year-to-date gains of almost 1,200%. The stock had been lingering near the $2 per share mark for more than a year, and out of nowhere—to those who did not know about the Fortnite trend—Turtle Beach skyrocketed as the company reported Fortnite-inspired growth.

Turtle Beach’s headsets give gamers a competitive advantage, enabling them to hear nearby foes moving around within the game. Players who take their Fortnite seriously love to use headsets, and there are not a ton of high-end options except for Turtle Beach.

Meanwhile, Turtle Beach is sporting a Zacks Rank #1 (Strong Buy), suggesting that its insane run can continue. EPS growth is expected to top 520% in 2018—thanks to 39% revenue growth—and that expansion is slated to continue into 2019.

 

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