Activision Blizzard ATVI stock is up over 30% in 2020 to outpace its peer group’s strong run and crush the S&P 500’s 3% decline. Now let’s dive into why the video gaming powerhouse might be worth buying as both a near-term coronavirus play and a long-term bet on the future of entertainment.
Gaming and the Pandemic
Activision Blizzard beat our first quarter fiscal 2020 earnings estimate by roughly 50% back on May 5, while its net bookings jumped 20% to $1.52 billion. The company also closed the period ended on March 31 with 407 million monthly active users, up 62 million or 18% from Q1 FY19.
The firm’s Call of Duty and World of Warcraft franchises helped lift its overall first quarter results. The company noted that Call of Duty: Modern Warfare recorded its highest sell-through for the franchise outside of a launch quarter, as it benefited greatly from the early days of the coronavirus lockdown.
Activision Blizzard also raised its full-year outlook back in early May, even as many companies continue to withdraw their guidance amid the uncertainty.
The overall global gaming market is projected to expand by 9.3% in 2020 to reach $159 billion, according to a May report from market research firm NewZoo. The video game space is also expected to grow into a $200 billion a year market by the end of 2023. And the mobile gaming sector is projected to expand at the highest rate and account for the largest percentage of the market.
Activision Blizzard’s Mobile and Ancillary division, which also includes sales of physical merchandise and accessories, posted the largest growth and accounted for 32% of total Q1 revenue—Console grabbed 33%, with PC at 28%. The firm noted last quarter that the “Candy Crush Saga and the wider Candy Crush franchise were once again the top-grossing title and franchise in the U.S. mobile app stores.” The company has also beefed up its broader mobile offerings for key franchises such as Call of Duty.
The nearby chart shows that ATVI shares have climbed roughly 213% in the last five years, against its peer group—which includes Electronic Arts EA, Nintendo NTDOY, Hasbro HAS, Take-Two Interactive TTWO, and others—40% jump. ATVI stock hit a brand new 52-week high on Monday, as the broader market surged to start the week on the back of Tesla TSLA, Amazon AMZN, Netflix NFLX, and others.
Despite its strong run, ATVI is currently trading not too far off from its one-year median at 8.1X forward 12-month sales. Plus, Activision Blizzard’s dividend payout is up 11% from 2019 and its 0.52% yield looks even stronger when we consider that rivals TakeTwo and EA don’t currently pay dividends. And its Toys - Games – Hobbies industry rests in the top 30% of our more than 250 Zacks industries right now.
Looking ahead, our current Zacks estimates call for ATVI’s adjusted Q2 earnings to soar 76% from the year-ago period to hit $0.67 a share. Meanwhile, second quarter revenue is projected to jump 39%, which highlights its expected quarantine strength.
The company’s fiscal 2020 sales are then projected to climb 11%, with its 2021 revenue set to jump another 7.5% higher. On the bottom line, Activision Blizzard’s adjusted fiscal year EPS figures are expected to climb 23% and 10%, respectively over this stretch.
Investors can also see that ATVI’s Q2 and longer-term earnings trends have improved to help it earn a Zacks Rank #1 (Strong Buy). ATVI also boasts a solid balance sheet and investors might want to consider it as both a stay-at-home play alongside the likes of Zoom ZM and others, as well as a longer-term bet on the ongoing gaming boom.
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