Shares of video game maker Activision Blizzard (ATVI) have recently tumbled from the high $70 range to the high $60 range. The company offered up some solid numbers for its earnings reports.
However, delays in some of its key titles will hurt the company not only now, but also going forward. I’m bearish on Activision Blizzard for just that reason. (See Analysts’ Top Stocks on TipRanks)
Activision Blizzard’s year so far has been one marked by repeated ups and downs. From January to July, the stock mainly fluctuated through the $90 to $100 range. The arrival of July, however, sent the stock on a precipitous drop that made $90 seem like a forgotten memory.
The company struggled to keep its share price above $80. Since mid-September, that’s been an almost impossible task. The company broke the $80 closing mark just two days in October, and has since retreated under $80 once more. (See Activision Blizzard stock charts on TipRanks.)
The company’s earnings report delivered solid results. Certainly, these were the kind of results that should not have prompted double-digit percentage losses in the share price. The company posted adjusted earnings of $0.82, which beat consensus estimates calling for $0.68 per share.
Revenue came in at $1.88 billion for the quarter, which was about a match for estimates. The company’s revenue was a 6.2% improvement over the same time last year.
So what causes this calamitous slide? Two of Activision Blizzard’s biggest games were not to be released as expected. Not just delayed into 2022, either, but all the way into 2023. Both “Overwatch 2” and “Diablo 4” were being pushed back into the much more distant future.
That’s bad news for gamers who were eager for new content. By extension, that’s worse news for Activision Blizzard, who now has less to show than ever.
Wall Street’s Take
Turning to Wall Street, Activision Blizzard has a Strong Buy consensus rating, based on 14 Buys and six Holds assigned in the past three months. The average Activision Blizzard price target of $99.38 implies 46.4% upside potential.
Analyst price targets range from a low of $75 per share to a high of $120 per share.
The New Game Drought Extends
Certain times of year have often meant gaming droughts. Summer was especially bad for new games, because most gaming studios were holding onto their big new releases until the holiday shopping season.
Then came 2020, and with the arrival of COVID-19 related lockdowns and office closures, game development kind of stuttered to a halt. The arrival of the new game systems proved a mixed blessing at best, as it became virtually impossible to find the new systems.
A combination of chip shortages and aggressive scalping programs cut the flow of consoles to all but a handful of people. Those lucky enough to land one, or desperate enough to pay a scalper’s price, were the only ones to have them. That’s going to cause some serious problems.
Right now, most new games are compatible with the old systems as well as the new ones, but that can only last so long. Unless the supply of new consoles improves accordingly, that limits the market for new games.
We’re still seeing some of the fallout from this, and now, Activision Blizzard is just one of the latest studios to walk into a long space of time with some of its biggest games missing in action.
Worse, Activision Blizzard is testing players’ goodwill with this latest development. Both “Overwatch 2” and “Diablo 4” were formally revealed at Blizzcon…2019. Two years ago. Now, they’re telling players it will be another two years before these games hit.
Concluding Views
Under normal circumstances, Activision Blizzard is probably a good buy. It’s got plenty of intellectual property on its side. Better yet, it has a massive user base already in the fold.
However, the reason I’m bearish on Activision Blizzard right now is that it’s testing both of those positive points to their limits. Gamers are not happy about a huge new delay for games they’ve been waiting for for years already. Delays are hampering the intellectual property’s ability to function.
Add these points together and a course of action suggests itself. Stay out of Activision Blizzard stock for the time being. There’s too much going on with the company right now and very little of it is pleasant. Hold out for a year or so, let those new releases get into an actual release window, and then revisit the company. Right now, it’s just a bit too dangerous for my tastes.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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