Blizzard, Inc. (NASDAQ:ATVI), one of the world's largest gaming companies, owns
three publishers: Activision, which is best known for its Call of Duty titles;
Blizzard, which publishes games like Overwatch, Diablo, World of Warcraft, and
Hearthstone; and King, which conquered smartphones with Candy Crush.
well throughout the pandemic last year as stay-at-home measures prompted people
to play more games.
revenue rose 25% to $8.08 billion in 2020, and its net income increased 46% to
$2.2 billion. Its non-GAAP EPS increased 39%.
flagship Call of Duty franchise drove most of the company's growth throughout
the pandemic. King kept mobile gamers engaged with newer versions of Candy
Crush, but Blizzard's aging titles -- namely World of Warcraft, Overwatch, and
Hearthstone -- attracted few gamers.
At the end
of the first quarter of 2021, Activision had 150 million monthly active users
(MAUs), Blizzard had 27 million MAUs, and King had 258 million MAUs. Activision's 47% year-over-year growth in
MAUs, which mainly came from Call of Duty, offset its declines at both Blizzard
and King during the quarter.
expects Activision's revenue and non-GAAP earnings to rise 4% and 8%,
respectively, this year. Call of Duty could face tough year-over-year comparisons
this year as the pandemic passes, while the newest expansion packs for World of
Warcraft and Hearthstone should only help Blizzard tread water instead of swim
The Major Catalysts for
of Activision Blizzard are still struggling to overcome a ceiling at
the $100 level, despite the equity making a home above that region in February,
culminating in a February 16 all-time
high of $104.53, before pulling back.
ATVI is on track to snap a week-long losing streak, and could finally
break above its 2021 breakeven mark, should today produces positive price
action and then holds. Also, the equity recently pulled back to a historically
bullish trendline that could help push the shares back toward record high
Blizzard stock just came within one standard deviation of its 160-day moving
average, after spending considerable time above the trendline.
2. Buy On
date, performance has been strong with ATVI delivering a beat and raise in the
first quarter of this year. Margins are above 35% and there is still
significant top and bottom-line growth. As ATVI continues into the year all
signs are pointing to continued success, as their products have all-time
momentum and engagement well after a year into their release.
led to all-time records in MAUs and engagement while COD Mobile and Candy Crush
have reinvigorated the mobile segment. ATVI’s offers a great way to play the
secular growth of video games while also gaining exposure to the most popular
franchise title and strongest operating model.
days, ATVI has sold off drastically after a solid run up after consolidating
earlier this year. With headlines about the release of Diablo and the
shareholder meeting over the CEO's pay floating around, there has been
volatility in the stock recently. In the past few sessions, ATVI has sold off
leader in their class, this recent dip provides a solid opportunity to gain
exposure to a secular growth story. At this current price, ATVI presents 10%
upside to ATH, at a time when the company has never been stronger and the
outlook has never looked better.
recently broke below its 7 and 50 day moving average after breaking out above
their trend for a couple weeks. As this breakdown was stark and quick expect a
sharp bounce back, especially given the muted atmosphere regarding the
sell-off. Recent videogame sales figures pointed to growth against tough comps
and offered positivity to the sector narrative. Keep your eyes open for a sharp
bounce back and test of the 50 day at $94.50 and an eventual retest of the 7
reported first-quarter 2021 non-GAAP earnings of 98 cents per share, up 28.9%
year over year. Consolidated revenues rose 27.2% year over year to $2.27
billion. Adjusting for revenues from non-reportable segments, net effect from
the recognition of deferred revenues and elimination of intersegment revenues,
total revenues jumped 35% to $1.98 billion. The Consensus Estimate for earnings
and revenues was 69 cents per share and $1.75 billion, respectively.
Activision Blizzard witnessed a year-over-year rise in Monthly Active Users
(MAUs) during the quarter ended Mar 31, 2021. Overall MAUs came in at 435
million in comparison with 407 million as of Mar 31, 2020. As well, the
company’s net bookings rose 35.7% year over year to $2.06 billion. Going on,
in-game net bookings were $1.34 billion, up 40.5% year over year.
(44.9% of revenues) revenues rose 71.7% year over year to $891 million. The
division had 150 million MAUs as of Mar 31, 2021, up 47.1% year over year. The
segment’s top-line growth was driven by Call of Duty: Black Ops Cold War and
Warzone in-game revenues, strong premium sales, and Call of Duty Mobile.
of Duty franchise MAUs climbed sequentially and grew more than 40% year over
year in the first quarter.
Improvement In Income Margins.....
been a steady improvement in income margins in each business segment. As you
can note Activision and Blizzards income margins have steadily improved over
the last two years while the King segment has stayed relatively flat. This is
logical as the King segment is by far the youngest, and thus more emphasis is
placed on top-line growth.
As a whole,
ATVI has improved margins by almost 2000 basis points from ~25% to ~45% while
accelerating growth in their highest margin segment.
Activision’s segment revenue year over year was 72% while growth in King was
22% year over year.
demonstrates the power and non-cyclical nature of ATVI’s newfound top and
bottom-line growth, which should change how ATVI is valued going forward.
Margins in all segments were impressive again especially with Blizzard income
margin almost testing all-time highs.
significantly high level of cash on hand, $9.3B in the most recent quarter, and
their low debt load, expect significant investment in all sectors without the
need for a strain on their heightened profitability. This could produce a
powerful growth engine for a couple years and initiate multiple expansions,
while ATVI stimulate their business with tactical deployments of cash.
Active Users (MAUs).....
releasing a COD title in Q1 2021, MAUs in the Blizzard franchise were at 150
million, 22 million players higher than past highs. This is a strong indication
that the success ATVI found in this franchise during the pandemic has more legs
than one might think. In fact it seems that the game is actually attracting new
users and in fact gaining momentum even 12 months after its release.
year of heightened performance in both the top and bottom line, the market has
still not fully priced in the power of the strategic changes, ATVI has
deployed. This rise in interest is not just accretive the annual title sale of
Call of duty, it is accretive year round with the new free-to-play
microtransaction model. This development eliminates cyclicality, extends the
live cycle of initial game investment and heightens profitability with an
entirely new revenue segment.
Re-Acceleration of Growth in the Mobile Segment.....
to start the year has been the notable re-acceleration of growth in the mobile
segment. Despite notable improvements to the re-opening outlook, mobile growth
has been strong. ATVI specifically saw momentum in the King advertising segment
which grew 77% year over year and highlighted that they expect it to continue.
They released a competitive aspect into the game and other updates that have
driven engagement and Ad sales.
revenue growth overall was 22% in the mobile segment. Additional growth in this
segment was recognized by the COD mobile title which has thrived off of
Warzone's momentum with COD segment revenues up 72% Y/Y and income up 100% Y/Y
and MAU's up 40% sequentially.
release in China should also fuel the growth in Asia that has been strong in
the past year. As the market continues to grow within the US, and ATVI
successfully brings its titles into the mobile space, this growth should be
supplemented by international interest.
It seems as
though a good amount of focus is being placed here currently and that will be
the case going forward as they mentioned their focus and investment in the COD
Mobile and Diablo Mobile game. This should be the main driver of growth going
forward as the console franchises fight against all-time comps and popularity.
And ATVI is positioned well to succeed in the space as they noted most top 10
mobile games are based off of pre-existing PC or console titles. As the owner
of some of the strongest entertainment franchises in the space, they pose good
chances for success here going forward.
Game Sales Strength.....
sales were up 3% Y/Y off of tough comps from 2020 when they rose 52% from 2019
numbers. YTD total sales are at $24.02B up 17% from the same period in 2020.
Despite doubts, video games have continued their pandemic strength into this
within this space is here to stay it seems, even with the current re-opening
measures. While growth may dip as a sector, while some companies struggle to
produce titles after a year of tightened labor, the trends are strong.
ATVI, as a
leader and clear benefactor of the last 12 months poises the best potential to
take advantage of this trend and continue their top and bottom line growth. As
a secular growth sector, this trend of progression should continue, and it is likely
that this pandemic only accelerated this trend both in the US and abroad.
9. Say on
Blizzard Inc. and its shareholders have been at odds about the chief
executive’s compensation for years, but as CEO Bobby Kotick’s 2020 pay package
hit more than $150 million while the videogame publisher company laid off
employees, the battle turned into an all-out war.
annual general meeting last week, the “Call of Duty” publisher hit the pause
button on an investor vote on its executive compensation, delaying it for a
week. Investment firm CtW Investment Group, which had urged shareholders to
vote against the “say on pay” proposal, called the company’s move a “desperate
attempt to avoid a loss.”
Varner, director of executive compensation research at CtW, told MarketWatch
that “while legal, this maneuver is unusual and in poor taste.”
Activision said 54% of shareholders approved the say-on-pay proposal.
“We are pleased that, based on
exceptional shareholder returns and responsiveness, Activision Blizzard
shareholders again approved our say-on-pay proposal and re-elected our Board
directors with an average of 96% of votes,” a spokesman for the company said. “The additional time shareholders requested
allowed them to thoroughly review the facts about Activision Blizzard’s
rigorous pay-for-performance compensation practices as well as changes the
Board made to our executive compensation based on extensive feedback from
brokerage bunch is already majorly optimistic toward the gaming name.
Currently, 15 analysts carry a "strong buy" rating, with another two
recommending "buy." Meanwhile, just two say "hold," and
there's not a "sell" to be seen. Plus, the 12-month consensus price
target of $116.41 is a healthy 25.9% premium to current levels.
Activision Blizzard has also been the subject of a number of research reports.....
- BMO Capital
Markets raised shares of Activision Blizzard from a “market perform” rating to
an “outperform” rating and set a $116.00 price target on the stock in a
research note on Monday, May 17th.
James reaffirmed a “buy” rating on shares of Activision Blizzard in a research
note on Monday, February 22nd.
Financial Group began coverage on shares of Activision Blizzard in a research
report on Friday, April 23rd. They set a “buy” rating and a $120.00 target
price on the stock.
- Morgan Stanley
raised their target price on shares of Activision Blizzard from $115.00 to
$120.00 and gave the company an “overweight” rating in a research report on
Wednesday, May 5th.
Deutsche Bank Aktiengesellschaft raised their target price on shares of
Activision Blizzard from $115.00 to $118.00 and gave the company a “buy” rating
in a research report on Monday, May 10th.