Activision-Blizzard’s Stock Soars Upward – Will it Last?

activision-blizzard

Activision Blizzard (NASDAQ: ATVI) soared to an all-time high of $56.78 this past week, raising new questions about the video game producer’s viability in the stock market.

Gaming is an incredibly hot sector, and Activision Blizzard is leading the charge. The question is whether the stock’s torrid pace will continue. It appears Activision Blizzard is nicely positioned for long-term gains.

A Look at the Numbers

Activision Blizzard raked in over $6.6 billion in revenue this past year. The company has eight franchises that have generated at least a billion dollars in “life-to-date” revenue. The company’s trailing 12-month revenue is $6,879,000. Cash from operations is $2,229,000. Its forward P/E ratio is 27.5.

Unlike competitors Electronic Arts and Take-Two, Activision Blizzard pays a dividend to shareholders. The dividend yields about 0.54 percent at the stock’s current price. This is a testament to Activision Blizzard’s financial strength, especially compared to other publicly traded game makers.

Many investors consider the existence of the dividend as a sign that the company is shareholder-friendly. Indeed, those who purchased Activision Blizzard stock at any point in the past five years have been handsomely rewarded.

The Game Maker Your Portfolio Needs

Part of what separates Activision Blizzard from the pack is its gaming diversity. The company creates a wide array of games for numerous consoles, PCs and mobile devices.

Though Activision has been somewhat slow to enter the foray of mobile gaming, company executives made a major move in this arena with the 2016 acquisition of King Digital Entertainment for just under $6 billion. As a result, Activision Blizzard now owns the rights to hit mobile titles like Bubble Witch and Candy Crush.

The company shines in the realm of online gaming, with its Overwatch League set to launch later this year. Activision Blizzard executives are currently in talks with prospective owners to purchase teams that will compete in this eSports league.

E-sports is exploding in popularity with each passing day. Viewership of eSports has skyrocketed from 204 million in 2014 to 292 million in 2016. This represents a 43 percent leap in merely two years. Global eSports revenue jumped from $194 million to $463 million in this period of time. Activision Blizzard is poised to profit quite handsomely from this emerging trend.

What Matters Most: The Products

In the end, the success of Activision Blizzard will primarily hinge on the merit of its games. This is precisely why analysts are so bullish on the company.

Activision Blizzard titles include popular staples such as Call of Duty, Destiny, World of Warcraft, Starcraft, Diablo, Overwatch, Candy Crush and Skylanders. These are some of the most successful video games on the market.

Furthermore, video games will only continue to grow in popularity as time progresses. Consider the fact that the average age of gamers is a mere 35. A whopping 65 percent of households that own a video game console or other game-playing device. Nearly half of all households own a device that is used exclusively for video games.

Video game purchases will continue to rise as the millennial age cohort secures full-time work and a subsequent hike in discretionary income. Activision Blizzard’s insanely popular titles are unique in the fact that they appeal to millennials as well as those who came of age in the 90s. Both age cohorts are hooked on the company’s lineup of games.

Sales Even Without Games?

Activision Blizzard produced better-than-expected numbers across the board last quarter. This success is in spite of the fact that the game maker did not release a single new title during that time.

Profits were primarily fueled by digital sales such as in-game purchases and game downloads. This form of recurring revenue will continue to serve as a cash cow across posterity. Few imagined Activision Blizzard could beat Wall Street estimates without introducing new games on a quarterly basis.

The company’s recurring revenue is a testament to the quality of its existing lineup of games. Such digital transactions have spurred analysts like Stephen Ju of Credit Suisse to bump up his Activision Blizzard price target all the way up to $62

Conclusion: Buy and Hold

Activision Blizzard is the type of business you invest in today, and check in on once every six months. The company is strategically positioned to capitalize on the rise of e-sports, mobile gaming and the much-coveted millennial cohort.

Furthermore, its traditional software titles for consoles and PCs will likely remain uber-popular for years to come.

Do not let the fact that the stock is hovering around its all-time high dissuade you from investing. Activision Blizzard will be a winner a year from now as well as a decade from now.

Regards,

Ethan Warrick
Editor
Wealth Authority