Activision Blizzard stock (NASDAQ: ATVI) has seen a fall of 20% over the last twelve months, while it’s up 15% YTD. ATVI stock fell over 30% from $82 in early September 2021 to $56 in early December, following the sexual misconduct lawsuit against the company. However, it jumped back to the level of over $80 after Microsoft announced its plans to acquire Activision Blizzard. The 15% rise for ATVI so far this year marks a significant outperformance with the broader S&P500 index, which is down 14%.
Looking at the longer term, ATVI Stock is up 67% from levels seen in late 2018. This compares with a 22% rise for Take-Two Interactive stock, a 77% jump for Electronic Arts stock, and a 65% rise for the S&P 500 index over the same period. Our dashboard – Why Activision Blizzard (ATVI) Stock Moved – provides more details on the factors behind this move over the last three years.
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This rise over the last three years was driven by: 1. the company’s P/S ratio, which grew 50% from 4.8x in 2018 to 7.3x currently, and 2. Activision Blizzard’s revenue rose 11% to $8.3 billion over the last twelve months, compared to $7.5 billion in 2018. A 2% rise in shares outstanding to 775 million currently, compared to 760 million in 2018, partly offset the stock growth. This has meant that the company’s revenue per share rose only 9% to $10.71 from $9.86.
The Covid-19 pandemic resulted in higher revenues in 2020 and 2021, as people eschewed more public forms of entertainment, and the user engagement levels for gaming companies, at large, trended higher. However, given the rebound in economic activities and gradual lifting of shelter-in-place restrictions over the recent quarters, gaming user engagement levels have declined. The company’s total monthly active users (MAUs) fell to 372 million in March 2022, compared to 435 million in March 2021. This impacted the company’s total bookings growth, which plunged 22% y-o-y to $1.5 billion, missing the consensus estimate of $1.8 billion.
Looking at Microsoft’s acquisition of Activision Blizzard, the deal is subject to be reviewed by the U.S. Federal Trade Commission. ATVI stock, at its current levels of around $78, is trading 18% below the $95 bid by Microsoft, implying that the investors are weighing a possibility of the U.S. FTC blocking this merger. Note that if the merger is successful, Microsoft will become the third largest gaming company globally, after Tencent and Sony.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Electronic Arts vs. Emergent Biosolutions.
|S&P 500 Return||0%||-14%||84%|
|Trefis Multi-Strategy Portfolio||2%||-18%||223%|
 Month-to-date and year-to-date as of 6/7/2022
 Cumulative total returns since the end of 2016