Activision Blizzard (ATVI) shares have continued to slip lower over the past few months, and are currently trading at 52-week low levels. Despite this, ATVI remains the most valuable video game company in the U.S., boasting a market cap of $48.6 billion.
I have previously expressed my love for the stock due to the company’s numerous positive qualities. These include one of the most diversified portfolios of video game titles globally, comprising iconic franchises such as Call of Duty, World of Warcraft, and Candy Crush, which have historically been cash cows. The business is also split mainly into three segments, Activision, Blizzard, and King, each focused on maximizing profitability based on its respective audiences and video game genres, thus increasing investors’ margin of safety.
The stock is currently under fire due to a sensitive report coming out revealing that the company’s CEO, Bobby Kotick, knew for years about sexual misconduct incidents at ATVI, which he neglected to disclose to the board. As a result, employees are walking out in protest, and investors are selling the stock.
While such news is, of course, to be taken seriously and actions should be taken to restore employee trust, from an investors’ perspective, the recent decline in shares likely presents an exciting opportunity. It’s indeed likely that ATVI will continue to perform poorly in the short term. That said, the company still makes a ton of cash, and considering its overall financials and valuation, the future upside prospects seem too good to ignore. (See ATVI stock charts on TipRanks)
Loyal Player Base Remains Intact
As I mentioned, the recent allegations regarding ATVI’s CEO are definitely worrisome, and it may be time for a CEO to step up. Operationally, however, ATVI remains robust. This is evident in its solid player retention rates.
By far, Activision Blizzard’s greatest characteristic is its capability to maintain a very consistent player base among its titles. Usually, titles in the market tend to be played once, with no incremental value for both players and developers. In contrast, ATVI’s titles are able to sustain solid player bases for months, even years, following their launch.
A great example is the company’s transition of the Call of Duty franchise into a game-as-a-service model, which converted Activision’s Monthy Active User (MAU) count into a much more stable one post-Q3-2019. You can see its statistics in the graph I pulled together below.
Indeed, the total MAU count has recently declined. However, this has happened in the past, and we should again see numbers accelerating following ATVI’s upcoming game releases.
With the company projected to produce FY2021 EPS of $3.81, shares are currently trading with a P/E of 16.88, which makes for a very attractive valuation in the space. Considering ATVI’s high profitability and the possibility of taking advantage of the recent dip to buy back stock on the cheap, I remain optimistic about the stock’s investment case. Hence, I remain bullish on the stock.
Wall Street’s Take
Turning to Wall Street, Activision Blizzard has a Moderate Buy consensus rating, based on 12 Buys, seven Holds, and zero Sells assigned in the past three months. At $93.38, the average ATVI price target implies a 49.70% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
