I am bullish on Activision Blizzard (ATVI) as it looks attractively priced relative to the agreed upon acquisition price with Microsoft. This makes it look like it could be a good arbitrage opportunity.
Activision Blizzard is a company that has been operating as a publisher and developer of interactive entertainment services and content since 2008. The company is headquartered in California, United States and has several subsidiaries, such as Blizzard Entertainment, Major League Gaming, Activision, King, Activision Blizzard Consumer Products Group, and Activision Blizzard Studios.
It became popular as one of the largest video game companies in the year that it was formed and has created several best-selling, evolutionary games, such as Overwatch, Skylanders, Call of Duty, and Candy Crush. In 2020, the company had more than 9,500 employees.
Strengths
Activision Blizzard has an undeniable global presence with its diversified groups of employees who have unrivaled skill sets and expertise. In the IT & Technology sector, this company has earned a massive share with its use of cutting-edge tools, methods, and technologies for interactive entertainment content and services.
Its successful track record of investments in new intellectual properties also gives this company a significant competitive edge over other gaming companies around the world.
With several awards to its name and a strong brand name in the industry, the company’s future has garnered high hopes from investors and employees alike. Additionally, the company’s excellent advertising strategies have also placed it as one of the top video game companies.
Recent Results
Microsoft is expected to acquire Activision Blizzard in order to bolster its gaming business.
Activision Blizzard also owns some popular eSports activities through its Major League Gaming franchise, as well as a global studio network and nearly 10,000 employees that are among the best in the industry.
Combining this strong core with Microsoft’s immense resources, technological prowess, and massive network, Activision Blizzard’s business should become even more valuable.
Valuation Metrics
ATVI stock looks attractively valued here as it trades below its three-year valuation multiple averages on an EV/EBITDA ratio and P/E basis.
Its enterprise value to EBITDA ratio is 15.6 compared to its historical average of 16.6, and its P/E ratio is 22.5 compared to its historical average of 24.5.
Analysts expect EBITDA to remain relatively flat in 2022 before soaring by 20.8% in 2023, and normalized earnings per share to decline slightly (down 2.6%) in 2022 before soaring by 21.6% in 2023.
That said, Microsoft is expected to buy Activision Blizzard for $95 per share, which is a sizable premium to the current share price.
Wall Street’s Take
According to Wall Street analysts, ATVI earns a Moderate Buy analyst consensus based on nine Buy ratings, 12 Hold ratings, and 0 Sell ratings in the past three months. Additionally, the average Activision Blizzard price target of $95.25 puts the upside potential at 16.5%.
Summary and Conclusions
ATVI stock is set to be acquired by Microsoft at a sizable premium to its current valuation.
As a result, it could be a great arbitrage opportunity, assuming it closes.
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