Can Activision Blizzard Stock Rebound To $60 Post Coronavirus?

Comparing the trend in Activision Blizzard’s stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 15% to over $60, once fears surrounding the coronavirus outbreak are put to rest. Our conclusion is based on our detailed comparison of ATVI’s stock performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: Activision Blizzard Stock Compared With S&P 500.

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31 and March 25, ATVI stock has lost 10% of its value (vs. about 26% decline in the S&P 500). The stock saw bigger decline after March 6th, when an increasing number of coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Activision Blizzard Stock Has Outperformed The Broader Markets

Activision Blizzard stands to benefit in the current crisis, as the demand for gaming could see traction, given that more people are confined to their homes, eschewing more public forms of entertainment. Even before the crisis, Activision Blizzard was doing well with its stock up 25% in 2019, led by continued demand for the Call of Duty franchise. In fact, the company confirmed that the latest game in the Call of Duty franchise, Call of Duty: Modern Warfare, generated sales of over $1 billion as of mid-December 2019. As of February 2020, the game continued to be the top selling game in 2020 as well. In the current environment, its likely that the game will continue to generate more sales. The company has a strong balance sheet with cash and investments of over $5.7 billion, and less than $3.0 billion in total debt. Less leveraged stocks typically fare very well during such crises.

We believe Activision Blizzard’s Q1 and Q2 results will confirm this reality with higher revenues, primarily for its Activision segment. If signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely Activision Blizzard’s stock could continue to outperform the broader markets, especially given it plans to launch several new games, including the World of Warcraft: Shadowlands sometime later in 2020.

ATVI Stock Outperformed During 2008 Crisis As Well

We see ATVI stock declined from levels of around $11 in September 2007 (pre-crisis peak) to levels of around $9 in March 2009 (as the markets bottomed out), implying ATVI stock lost only 11% from its approximate pre-crisis peak. This marked a much narrower decline compared to the broader S&P, which fell by as much as 51%.

ATVI stock, though, recovered slightly post the 2008 crisis, to levels of about $10 in early 2010, rising by 14% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will ATVI Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that ATVI stock has fallen by 10% this time around compared to the 11% decline during the 2008 recession, we believe it can potentially recover by 15% to around $60, when the current crisis winds down. This marks a full recovery to the $60 level ATVI stock was at before the coronavirus outbreak gained global momentum. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of companies, including Honeywell and 3M. The complete set of coronavirus impact and timing analyses is available here.

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