On surface level, Activision Blizzard (NASDAQ:ATVI) isn’t exactly a name you’d consider owning right now. Video game manufacturers, including rival Electronic Arts (NASDAQ:EA), have experienced extreme volatility since late last year. Even worse, Activision Blizzard stock has been range-bound throughout this year, inviting questions about longer-term viability.
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Moreover, ATVI stock isn’t what you would call a mission critical investment. For instance, high-tech firms levered toward innovations like artificial intelligence or the 5G network rollout offer something beyond the print. In other words, their product developments could set the framework for our economy over the next several decades. Plus, we’re in a major rivalry with China and Russia to lead in groundbreaking, paradigm-shifting industries.
But Activision Blizzard stock? We’re just talking about video games here. Although they’re a great business when times are good, against an upcoming recession, this sector simply doesn’t generate much confidence.
And for most investors, I think the cautious approach is best here. Although I’m not a geopolitical expert, what’s happening in the international front spells all kinds of ugly for us. When combined with serious global economic concerns, equities generally have lost their luster.
Still, if you can handle some risks, ATVI stock does carry some contrarian weight. Here are three factors that support this logic:
ATVI Stock Benefits from Sudden Relevancy
During recessions, consumers gradually tighten their belts. That much is obvious. Under this context, Activision Blizzard stock seems like a name you should dump. After all, nobody needs to play video games when you ought to be fighting to make ends meet.
However, we should remember that the first consumer goods to suffer lower demand are high-ticket durable goods. What I mean are activities like home purchases or buying that fancy new convertible. Job insecurity has a great way of bringing even the most profligate people to their senses.
But video games? Arguably, these are durable goods that are relatively cheap. A recession would have to worsen significantly in scope before people stop buying games altogether.
More critically, video games might actually be among the last frivolities that consumers let go. That’s because in every recession (or depression), entertainment has played a major role as a coping mechanism.
Recently, I made the argument that streaming TV equipment provider Roku (NASDAQ:ROKU) might benefit from this dynamic. And like ATVI, Roku provides much-needed entertainment for essentially rock-bottom prices.
As a result, I’m looking at ATVI stock as a long-shot contrarian candidate.
Changing Industry Landscape Streamlines Game-Making Efforts
Prior to fears about the U.S.-China trade war and recession risks in Europe, video-game manufacturers only saw red from “Fortnite.” A free-to-play (FTP) game that has garnered incredible popularity across a variety of platforms, “Fortnite” stunned the gaming establishment.
In some ways, this phenomenon was the anti-Activision. Going against the grain of gritty graphics and even grittier storylines for which ATVI is renowned, “Fortnite” has a much more family-friendly vibe, replete with colorful, cartoonish graphics.
Lacking a Hollywood-style production,”Fortnite” didn’t have the bells and whistles that had previously driven Activision Blizzard stock. Instead, it emphasized multi-player camaraderie, particularly with its “Battle Royale” mode.
Now why am I going through the effort to explain all this? Simply put, Activision’s leadership team have learned that they can streamline their efforts. Gaming has changed, and many fans are no longer impressed with stunning visuals. Instead, connectivity – which is much cheaper – seems to be the recurring motif.
As evidence, consider that “Fortnite” is still very popular despite shedding its freshness factor. Furthermore, Electronic Arts released their own FTP game, “Apex Legends,” to rave reviews and engagement.
Thus, money isn’t the issue. Instead, Activision should figure out what customers want, which is the social experience. That shouldn’t cost much to implement, which is beneficial for ATVI stock.
Instead, Activision can save their money for their marquee franchises, which brings me to my final point.
Activision Blizzard Stock Will Take the “Call”
If you don’t know anything about ATVI stock, you should know this: Activision owns Infinity Ward, which is the gaming studio responsible for the famous (or infamous) “Call of Duty” franchise.
Well-known and regarded for its realistic graphics, compelling campaign modes, and extensive multi-player options, “Call of Duty” is one of the most popular gaming franchises of all time. But in recent years, Activision has taken somewhat of a U-turn from their modern, shoot-em-up motif. That’s left millions of gamers itching for a truly groundbreaking and relevant “Call of Duty” title.
Fortunately for those faithful fans, they’re about to get exactly what they want and more. I read through Game Informer magazine’s preview of the upcoming “Call of Duty: Modern Warefare.” If even half of the features that were advertised in this preview make it to the final copy of the game, it could spark record-breaking sales.
Therefore, you might not want to give up on Activision Blizzard stock. Although the surrounding environment is ugly, the best is just around the corner for ATVI.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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