Activision Blizzard (ATVI) is an American interactive gaming and entertainment company based in Santa Monica, CA. The company was founded in 2008 when Activision Inc merged with Vivendi Games. It consists of five business units, including Activision Publishing, Blizzard Entertainment, King, Major League Gaming, and Activision Blizzard Studios.
I am bullish on Activision Blizzard because shares look inexpensive right now compared to recent historical valuation multiples. In addition, the company operates in a dynamic and growing business with fiercely loyal customers, and Wall Street is overall bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Strengths
Activision Blizzard is the largest video game company in the Americas and Europe. It has released some of the world’s most famous and enduring gaming franchises, including Call of Duty, Overwatch, World of Warcraft, Candy Crush, Farm Heroes, Bubble Witch, and Diablo. The company has broken many records and has a fantastic record of delivering exceptional shareholder returns for more than 30 years.
The company’s continuous success has allowed it to support a number of corporate social responsibility ventures tied to its game franchises, including the Call of Duty Endowment, which has helped 90,000 veterans find jobs.
Recent Results
Activision Blizzard reported revenue of $1.88 billion in its third quarter of 2021, meeting analysts’ expectations. This shows an increase of 6% from the $1.77 billion revenue generated a year ago. The company also saw earnings of $0.72 per share compared to the expected $0.70.
In-game net bookings were $1.2 billion, in line with the third quarter of 2020. Overall, the company saw monthly active users of 390 million for the third quarter ended September 30.
The Activision unit saw 119 million users in the quarter compared to 111 million in the third quarter of 2020 and 127 million in the second quarter of 2021. Blizzard saw a decrease in users from 27 million a year ago to 26 million in the third quarter of 2021, even though the remake of Diablo II: Resurrected was launched in the quarter.
King also saw a significant decrease in its users, from 249 million in the third quarter of 2020 to 245 million in the third quarter of 2021. However, its revenue improved 20% in the third quarter compared to a year ago. Both its volume and pricing saw a strong growth year over year, thanks to its team’s improving relationship with demand partners and an increase in the new categories of advertisers.
The company improved its earlier guidance of $2.78 billion in revenue in the fourth quarter of 2021 to $2.91 billion. It expects a net income of $1.38 per share in the fourth quarter of 2021. For the full year, the company expects revenue of $8.784 billion and consensus EPS of $3.70.
Valuation Metrics
Activision Blizzard’s stock looks attractively priced now, as its EV/EBITDA ratio is 14.1x. This is discounted relative to its five-year average of 20x. The price-to-forward normalized earnings ratio is 18.8x, which is discounted relative to its five-year average of 24.50x (see ATVI stock charts TipRanks).
Wall Street’s Take
From Wall Street analysts, Activision Blizzard earns a Strong Buy consensus rating, based on 15 Buys and five Holds assigned in the past three months. Additionally, the average Activision price target of $97.06 puts the upside potential at 37.5%.
Summary and Conclusion
Activision Blizzard operates in a dynamic industry that has a lot of growth potential, as well as a very loyal customer base. Furthermore, the valuation looks attractive right now as the stock is trading at multiples that are at a significant discount to historical averages.
Last, but not least, Wall Street is overwhelmingly bullish on the stock and the price target implies significant upside potential over the next year. As a result, investors may want to consider looking into Activision.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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