Activision Blizzard Stock Forecast: Activision Blizzard, Inc. [NASDAQ: ATVI] is an American video game holding company primarily engaged in the task of publishing, developing, and distributing content and services on video game consoles, personal computer platforms, and mobile and tablet platforms.
The company operates through five business units:
- Activision Publishing,
- Blizzard Entertainment Inc.,
- King Digital Entertainment,
- Major League Gaming, and
- Activision Blizzard Studios
The company owns and operates additional studios under an independent studios model under Activision Publishing, including Toys for Bob, Infinity Ward, Sledgehammer Games, High Moon Studios and Treyarch.
With nearly 500 million monthly active users in 196 countries, Activision Blizzard is one of the most dominant video game companies in the US and Europe.
The Santa Monica, California-based company, which was formed in July 2008 through the merger of Activision, Inc. and Vivendi Games, owns some of the most popular franchises in the world, including the likes of Call of Duty, Candy Crush Saga, Warcraft, Diablo, Farm Heroes Saga, Bubble Witch and StarCraft, among others.
One of Fortune’s 100 best companies to work for, Activision Blizzard has been one of the stocks that make up the S&P 500 since 2015.
Is Activision Blizzard Stock A Buy
Activision Blizzard stock hit a high of $84 in 2018. It nosedived from there, but made a strong comeback in 2019, rising around 28%.
Factors contributing to the added enthusiasm of the investors included strong buzz and sales recorded by a few of the company’s top franchises.
The new mobile version of Call of Duty, termed Call of Duty Mobile and developed by Tencent’s TiMi studios, was a runaway hit. It was downloaded more than 100 million times in just the first month of its release.
A unique feature of this game is that it seeks to promote the company’s game monetizing strategies.
The gaming company in late October also released the next installment for the console version of the franchise – Call of Duty: Modern Warfare. Call of Duty is usually among the best-selling console titles for Activision.
What instills further confidence in investors is the fact that the company has an impressive lineup of add-on content for 2020. This is likely to provide an added impetus to its efforts to monetize the game and further enhance the scale and value of the overall franchise.
How Does Activision Make Money?
Activision Blizzard, Inc. [NASDAQ: ATVI] derives a majority of its revenues by monetizing games with add-on content. The company reported a revenue of $1.21 billion for the quarter, of which digital in-game sales contributed 58%.
World of Warcraft Classic also witnessed a heightened response from both new and existing players. Activision Blizzard plans to cash in on the momentum these two franchises have generated by planning the launch of Call of Duty esports league and the 2020 release of the World of Warcraft: Shadowlands content expansion.
Esports is a 10-year project for Activision, but companies that have a strong presence in this field are likely to reap a windfall in the coming years.
It may not add much to the company’s financial at the moment, but the business model which gives the company that designs the game the ownership, distribution and rule modification rights is expected to significantly contribute to the company’s profits.
Another factor adding luster to the stocks is the strong performance of in-game advertising. This is proving to be a serious revenue generator for the company, with net bookings from mobile ads in Activision Blizzard’s King unit recording close to 100% jump year over year in the third quarter.
Keeping the recent momentum in mind, the company expects the revenue from in-game advertising to hit the $200 million mark in 2020.
Risks of Investing In Activision Blizzard?
There is no doubt that Activision Blizzard has an enormous fan base and some of the most popular game franchises in its kitty. However, there is no denying the fact that the company is facing fierce competition, mainly from free-to-play games.
The free-to-play model has been gaining momentum steadily in recent years and the industry’s shift towards free-to-play model definitely poses some threat to the company.
There is no rocket science involved in this as you will be hard-pressed to convince a game enthusiast to shell out $60 on a game when equally lucrative alternatives are available for free. In fact, highly popular games like Fortnite and League of Legends are available for free download.
Activision Blizzard’s latest quarterly result attests to this fact. The company had a revenue of $1.21 billion for the quarter, down 27.1% from $2.38 billion on a year-over-year basis.
Additionally, the stocks currently sport a forward price-to-earnings (P/E) ratio (current stock price/ predicted next annual earnings period) of 23.5 and a price-to-sales (P/S) ratio (the current stock price over the predicted sales per share) of 6.56, which is higher than its competitors. This makes Activision Blizzard one of the more expensive gaming stocks to hold.
Activision Blizzard Stock Forecast
The shares of Activision Blizzard, Inc. [NASDAQ: ATVI] are in the rebounding mode, which shows the investors are optimistic about the company’s prospects.
It is worth mentioning that Sony and Microsoft are launching new consoles in the fall of 2020. If history is anything to go by, this is going to benefit Activision in a big way.
The last time new consoles were launched in 2005 and 2014, Activision’s stock jumped 52% and 90% respectively. This is not surprising as the launch of a new technology generates enthusiasm both among new and existing gamers.
Additionally, experts believe Diablo 4 has the potential to help Activision gain traction in terms of growth in revenue and its active user base. A highly popular franchise, it hasn’t had a new release in more than seven years. With a price tag of $60, Diablo can become a major money-minting machine for the company if it lives up to its expectations.
The success of Diablo 4 is likely to spill onto other areas as well, given the company’s expertise in facilitating the entire process of trying out/buying its other games on its platform.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.