What’s Next For Activision Blizzard Stock After An 11% Fall Yesterday?

ATVI: Activision Blizzard logo
Activision Blizzard

Microsoft’s proposed acquisition of Activision Blizzard (NASDAQ: ATVI) continues to face regulatory hurdles. Yesterday, the UK Competition and Markets Authority announced a decision to block the merger due to competition concerns related to cloud gaming. Although Microsoft plans to appeal against this decision, ATVI stock plunged 11% to $77 on April 26 following this development. Late last year, the U.S. FTC asked a judge to block Microsoft’s proposed acquisition stating that it would hurt competition in the gaming industry. However, Microsoft has been willing to give concessions. It has already reached an agreement with Nintendo and Nvidia to offer Call of Duty on their platform for the next decade, and it has offered a similar deal to Sony.

We maintain our view that Activision Blizzard is poised for growth, irrespective of the deal status. The company is home to some of the largest franchises, including Call of Duty and Candy Crush. Activision’s Q1 2023 results, announced yesterday, were better than street estimates, and 2023 will likely be a solid year for the company. It reported net bookings of $1.86 billion, reflecting a substantial 25% y-o-y growth. The company benefited from its key franchises, including Call of Duty, Warfare, Overwatch, Diablo, and Candy Crush. The company’s total monthly active users (MAUs) rose to 372 million by the end of 2022, compared to 368 million in March 2022. Activision Blizzard will launch its Diablo IV title in June 2023, likely driving its top-line growth over the coming quarters. We forecast the company’s bookings to be around $9.4 billion in 2023, reflecting a low double-digit y-o-y growth. Its operating margin contracted over 650 bps in 2022 amid higher costs, but it will likely see a rebound in the near term. Our Activision Blizzard Operating Income Comparison dashboard has more details. The company’s balance sheet is also robust, with a 6% debt as a percentage of equity and 45% cash as a percentage of assets.

We estimate Activision Blizzard’s Valuation to be $92 per share, about 19% above its current market price of $77. ATVI stock has seen a fall of 10% this month, while it hasn’t seen any growth year-to-date, underperforming the broader indices, with the S&P500 index up 8%. At its current levels, ATVI stock is trading at 19x its 2023 earnings estimate of $3.95, compared to the last three-year average of 23x, implying that it has more room for growth. Overall, we believe this recent dip in ATVI stock can be used as a buying opportunity for long-term gains.

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While ATVI stock has more room for growth, it is helpful to see how Activision Blizzard’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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 Take-Two Interactive vs. Fair Issac.

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Returns Apr 2023
MTD [1]
YTD [1]
Total [2]
 ATVI Return -10% 0% 113%
 S&P 500 Return -1% 6% 81%
 Trefis Multi-Strategy Portfolio -2% 6% 233%

[1] Month-to-date and year-to-date as of 4/27/2023
[2] Cumulative total returns since the end of 2016

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