NASDAQ: ATVI
COMPANY DESCRIPTION
Founded
in –1979 | Current Market Cap – 40.15 Billion USD
Activision
Blizzard, Inc. develops and distributes content and services on video game
consoles, personal computers (PC), and mobile devices. The company operates
through three segments: Activision Publishing, Inc.; Blizzard Entertainment,
Inc. and King Digital Entertainment. The company develops, publishes, and sells
interactive software products and entertainment content for the console and PC
platforms through retail and digital channels, including subscription,
full-game, and in-game sales, as well as by licensing software to third-party
or related-party companies; and offers downloadable content. It also maintains
a proprietary online gaming service, Battle.net that facilitates the creation
of user generated content, digital distribution, and online social connectivity
in its games; and develops and publishes interactive entertainment content and
services primarily on mobile platforms, such as Android and iOS, as well as
distributes its content and services on the PC platform primarily through
Facebook. In addition, the company engages in creating original film and
television content; and provides warehousing, logistics, and sales distribution
services to third-party publishers of interactive entertainment software, as
well as manufacturers of interactive entertainment hardware products. Its
products include various genres, including first-person shooter,
action/adventure, role-playing, strategy, and others. The company serves
retailers and distributors, including mass-market retailers, first party
digital storefronts, consumer electronics stores, discount warehouses, and game
specialty stores through third-party distribution and licensing arrangements in
the United States, Australia, Brazil, Canada, China, France, Germany, Ireland,
Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea,
Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. is
headquartered in Santa Monica, California.
RECOMMENDATION
We rate Activision Blizzard, Inc. a Buy at
USD 51 for a target of USD 61 in two months.
Below are the basic reasons to
recommend this stock as a Buy.
·
Activision popularity is primarily driven by its
well-known franchises, which will continue to fuel top-line growth. It
currently has eight $1 billion franchises. Call of Duty is one of the biggest
growth drivers for the company. The latest edition of Call of Duty: WWII was
the top-selling console video game in 2017 globally. Destiny 2 was the
second-highest selling console game in North America. Moreover, Overwatch has
over 40 million players now following its release.
·
Compared with the physical platform, digital
games are more profitable due to minimum packaging cost. This cost
effectiveness will help publishers to use the digital format to keep a popular
franchise running profitably over a longer period. Plus, Activision has been
trying to adopt an all year-round model instead of a launch-based model in
which majority earnings and profits are derived in the first week to boost
engagement. This bodes well for long-term performance.
·
In 2016, Activision scooped up Ireland-based
King Digital Entertainment for $5.9 billion. The acquisition is boosting the
company’s presence in the lucrative mobile gaming arena. As per Newzoo, by
2020, more than 50% of the revenues will come from mobile games. King Digital’s
Candy Crush Saga and Candy Crush Soda Saga continue to be two of the top 10
grossing games on iOS and Android app stores (U.S.). In 2017, King contributed
majorly to the company’s in-game net bookings. Additionally, the release of
latest Candy Crush Friends Saga is a key catalyst. The unit, however, is not
standing still. It will actively invest in other games internally and through
partnerships, lowering risks of launching new titles and cutting development
costs.
·
Activision Blizzard has long been eyeing the
lucrative e-sports market. E-sports refer to live video game tournaments. With
continued increases in viewership, corporate sponsorships and growing media
coverage, e-sports is here to stay. Per latest report from Newzoo, e-sports
industry will reach $1.4 billion by 2020.
To grab a share of this lucrative opportunity, Activision formed an
exclusive e-sports unit spearheaded by former ESPN CEO Steve Bornstein.
·
Activision has already established Call of Duty
World League. The company reported Overwatch League to have drawn more than 10
million viewers in the opening week. The company announced a two-year deal with
Twitch, under which the social video service provider will stream every match
of the world’s first global city-based e-sports league. Moreover, Activision
onboarded two new teams from U.S. and China for its 2019 Overwatch League
season.
·
Activision Blizzard’s stock has done well in
recent years because of the consistent success of its major games. Call of Duty
can continue to generate more revenue for the company for several quarters, as
early data indicates that players will be interested in the game for a longer
time, compared with previous versions.
EARNINGS
Activision Blizzard reported
third-quarter 2018 non-GAAP earnings of 42 cents per share. Earnings declined
5% from the prior-year quarter.
Net revenues (including deferrals)
declined 6.6% year over year to $1.51 billion.
The Consensus Estimate for earnings
and revenues was pegged at 51 cents and $1.69 billion, respectively.
BALANCE SHEET
As of Sep 30, 2018, Activision had
$3.31 billion in cash and cash equivalents compared with $4.86 billion as of
Jun 30, 2018. Activision exited the quarter with long-term debt of $2.67
billion. Operating cash flow for the quarter was $253 million.
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