Is Activision Blizzard’s Stock Fairly Priced?

by Trefis Team
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Activision Blizzard
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Activision Blizzard’s (NASDAQ:ATVI) stock is fairly priced in our view. We estimate the price to be $62 per share based on expected 2020 earnings, which compares with the current market price of $59. Activision Blizzard’s stock price has grown around 30% year-to-date, primarily driven by the company’s better than expected performance in the recent quarters. In this note we discuss our stock price valuation for Activision Blizzard. You can look at our interactive dashboard analysis ~ Activision Blizzard Valuation: Expensive Or Cheap? ~ for more details.

Activision Blizzard is engaged primarily in developing and distributing games for video game consoles, personal computers, mobile phones, and the Internet. Its customers include hardcore as well as casual gamers. It competes with other gaming companies, including Electronic Arts, Zynga, and Take Two Interactive. The Trefis Price Estimate For Activision Blizzard’s Stock Is Around $62 Per Share. We arrive at the stock price estimate for Activision Blizzard as: Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple.

#1. Estimating Activision Blizzard’s Total Revenues:

  • Total Revenues have increased from $6.6 billion in 2016 to $7.5 billion in 2018, and it could decline slightly to $7.0 billion by 2020.
  • Our Interactive Dashboard Analysis, ATVI Revenues: How Does Activision Blizzard Make Money?, Provides An In Depth View Of The Company’s Revenues.

Comparing Trends In Activision Blizzard’s Total Revenues With That of Its Peers

  • Activision Blizzard’s revenue grew from $6.6 billion in 2016 to $7.5 billion in 2018, and it is estimated to be $7.0 billion in 2020.
  • This compares with Electronic Arts revenue, which grew from $4.8 billion in fiscal 2016 to $5.4 billion in fiscal 2019, and it is estimated to be $5.8 billion in fiscal 2020.
  • Zynga’s revenue grew from $0.7 billion in 2016 to $0.9 billion in 2018, and it is estimated to be around $1.4 billion in 2020.

#2. Deriving Activision Blizzard’s Net Income:

  • Net Income grew from $1.7 billion in 2016 to $2.1 billion in 2018, and we expect it to be around $2.0 billion in 2020.
  • Our Interactive Dashboard Analysis, How Does Activision Blizzard Spend Its Money?, Provides More Details On The Company’s Expenses.

#3. Determining Activision Blizzard’s EPS:

  • EPS has grown from $2.19 in 2016 to $2.72 in 2018, and we estimate it to decline slightly in the near term.
  • EPS decline can be attributed to lower Net Income and Revenues, partly offset by lower Shares Outstanding.

#4. Estimating Activision Blizzard’s Share Price:

  • Our Price Estimate of $62 For Activision Blizzard’s stock is based on our Detailed Valuation Model, and implies a 23x P/E Multiple on expected 2020 EPS of $2.65.

Comparing Activision Blizzard’s P/E Multiple Over The Last Four Years With That of Its Peers

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