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Activision Blizzard: Momentum Set to Continue Into the Post-Pandemic Era

·3 min read

Gamers made good use of the pandemic, which was obviously a boon for gaming companies. Any concerns the explosion in usage might fade were given short thrift by Activision Blizzard (ATVI) when the company reported Q1 results on Tuesday. The gaming giant did to the estimates what a character in one of its action-packed games might do to an enemy: turned them into mincemeat.

Although the strong performance came as less of a shock to Baird’s Colin Sebastian, the analyst notes a more telling remark made by the company following the results.

“More surprising was management's commentary that usage and monetization trends remained steady through April even as regional lockdowns ease,” the 5-star analyst said. “Overall, we continue to like the stock and believe that further upside is likely from positive usage trends, strong online/mobile pipeline (investing in more developer talent), and continuing positive secular growth trends.”

So, what happened in Q1? Revenue increased by 36% year-over-year to $2.07 billion, coming in $290 million ahead of the estimates. Non-GAAP EPS of $0.84 beat the Street’s forecast by $0.15.

The big revenue beat came off the back of “continued Call of Duty momentum.” The franchise’ MAUs were up by 40% from the same period last year and console/PC in-game bookings showed a 60% year-over-year uptick. King revenue growth also accelerated, up by 22% year-over-year compared to 15% growth in Q4. The King segment came under the ATVI fold five years ago and is led by Candy Crush.

Going forward, in what Sebastian calls a “strong sign of confidence,” the company said that over the next two years to “support core franchise growth,” it plans on hiring over 2,000 new developers.

Following the results, Sebastian made some key estimate revisions and boosted the 2021 revenue forecast from a prior year-over-year uptick of 0.4% to 2.9%, while operating margin is expected to hit 43.1% vs. the previous estimate of 42.5%. Moreover, despite higher marketing and R&D investments, Sebastian expects 2021 non-GAAP EPS will reach $3.71, compared to $3.62 beforehand.

All in all, Sebastian reiterated an Outperform (i.e., Buy) rating on ATVI stock backed by a $118 price target. The implication for investors? Upside of 28%. (To watch Sebastian’s track record, click here)

Sebastian is no lone ATVI bull. Based on 13 Buys vs. 2 Holds, the analyst consensus rates this stock a Strong Buy. The forecast is for 12-month gains of 26%, given the average price target comes in at $115.88. (See ATVI stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.