Activision Blizzard (ATVI) shares have risen more than 5.5% in early market trading today.
ATVI’s stock returns
Currently, Activision Blizzard stock is trading at $51.24. The stock is 30% above its 52-week low and 39% below its 52-week high. ATVI investors have lost significant investor wealth. The stock fell from $84 in October 2018 to $39.5 in February.
Activision Blizzard shares fell due to lower sales growth. The company’s sales will likely fall 12.8% from $7.26 billion in 2018 to $6.33 billion in 2019. Shares of gaming companies like ATVI, Electronic Arts (EA), and Take-Two Interactive (TTWO) were impacted in 2018 due to the rising popularity of battle royale games like Fortnite and PlayerUnknown’s Battlegrounds.
While Electronic Arts stock fell 24% in 2018, Take-Two Interactive stock fell 5%. Gaming companies are starting to make a comeback. ATVI stock has risen 8.6% since July. We said that ATVI stock was undervalued in June. Since then, the stock has gained 21%, which easily beat the market returns.
Activision Blizzard’s revenues will likely increase 9.6% to $6.94 billion in 2020 and 9.3% to $7.63 billion in 2021. Analysts expect the company’s EPS to rise 15.1% in 2020 after falling 16.2% in 2019.
Leader in eSports
So far, Activision Blizzard’s Overwatch League has been a success. The company has been one of the first movers in the eSports segment. Going forward, Activision Blizzard wants to replicate Overwatch’s success across other games.
Goldman Sachs (GS) is optimistic about the growth potential in eSports. According to Goldman Sachs’ report, “eSports are moving into the mainstream. The immense popularity of survival-based games like Fortnite, growing prize pools for eSports tournaments, the rise of live-streaming, and improving infrastructure for pro leagues have all paved the way for eSports to reach nearly 300mn viewers by 2022, on par with NFL viewership today.”
Goldman Sachs expects the growth in eSports to help gaming publishers like ATVI, Electronic Arts, and Take-Two Interactive increase their audience reach and player engagement. The new segment will help gaming companies diversify their sales as well.
Is ATVI stock a “buy”?
Activision Blizzard stock bottomed out in early February. Since then, the stock has made a strong comeback. The company has several revenue drivers including its player base of over 300 million, eSports growth, and a strong gaming portfolio.
Although 74% of the 27 analysts tracking ATVI recommend a “buy” at the current price, they have a 12-month average target price of $53.9. The target price indicates an upside potential of less than 10%.
Activision Blizzard is still a cyclical company. The company depends on new gaming releases to drive its sales growth. There’s also uncertainty about an economic slowdown, which could drive ATVI and peers’ shares lower. Activision Blizzard is more of a “hold” than a “buy” at the current price.
Market Realist analyst Aditya Raghunath does not hold a position in ATVI stock