Most of 2018 was a disaster for Activision Blizzard (NASDAQ:ATVI) stock.
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In fact, after topping out at $84 in early October 2018, Activision Blizzard stock quickly sank to less than $40 per share, as investors worried that the company’s revenue and margins would decline. ATVI also announced that it would not launch a new World of Warcraft game in 2019.
However, despite its recent weakness, ATVI stock is attractive, as 2020 looks poised to be a great year for the company and the gaming industry in general. That’s all thanks to a new generation of gaming consoles that are slated to be released in 2020.
Activision Blizzard stock has plenty of catalysts, including those new consoles and eSports. I’d like to see the stock’s bearish gap refill to $65 in the near-term. In the longer term, I think ATVI can test its September 2018 high of $84.
Activision Blizzard Stock Appears Fundamentally Strong
In recent weeks, the company posted Q3 results that were ahead of its own prior expectations. For example, its revenue of $1.282 billion was well above its previous forecast of $1.105 billion. Its earnings per share of 38 cents was also well above its previous guidance for 20 cents.
“Our third-quarter results exceeded our prior outlook for both revenue and earnings per share,” said Bobby Kotick, the CEO of Activision Blizzard. He added:
“Recent launches have enabled significant growth in the size of our audiences for our Call of Duty and World of Warcraft franchises. We believe we can increase audience size, engagement and monetization across our wholly owned franchises. (We have) a strong content pipeline and momentum in mobile, e-sports and advertising,”
However, even with its great earnings, Activision Blizzard stock pulled back after ATVI said it expects net Q4 revenue of $2.65 billion, which was below analysts’ average estimate at the time of $2.75 billion.
Despite the guidance miss and the fact that ATVI is facing stiffer competition from online and free-to-play games, analysts don’t seem concerned about the outlook of ATVI stock.
Maybe that’s because ATVI’s top video games are already exceeding expectations, according to a UBS poll of 5,000 gamers. Better yet, UBS just raised its price target on Activision Blizzard stock from $56 to $66 per share. The firm has a “buy” rating on the shares.
“Ongoing monitoring of player engagement, sentiment, & monetization trends for core gaming franchises presents a picture of a highly engaged global user base and a medium that persistently takes share of media time spent,” UBS analyst Eric Sheridan wrote.
New Consoles Will Drive ATVI’s Growth
By 2020, Sony (NYSE:SNE) will release its new PlayStation 5. Also in 2020, Microsoft (NASDAQ:MSFT) will release next-generation Xbox consoles, code-named Project Scarlett. Both will arrive in time for the 2020 holiday season, launching a new cycle of video-game buying.
“If you’re a gamer, if you drop $400 to $500 for a console, you’re obviously going to buy some games, too,” said Jefferies analyst Alex Giaimo.
Moreover, “the video game console cycle tends to fuelstock (gains by video-game companies) …, not just for the console makers but for the game publishers as well. During the 12 months preceding major console launches in 2000, 2005, and 2013, shares of Activision, Take-Two and Electronic Arts beat the broad stock market by an average 26%,” according to Cowen.
eSports Boom will Drive ATVI Stock Higher
Activision Blizzard stock should also be boosted by the eSports boom.
“Last year, nearly 400 million people watched esports competitions, Needham said.Goldman Sachs thinks eSports revenue could reach $2.96 billion by 2022.
The Bottom Line on ATVI Stock
Activision Blizzard stock was beaten silly in the latter part of 2018 and into 2019 thanks to lower expectations by investors. However, with plenty of negativity priced into the Activision Blizzard stock, I’m a buyer on the recent pullback. With new consoles being released in 2020 along with the eSports boom, I would buy ATVI stock and hold it for the long-term.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
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