ATVI: A Near-Doubler in 2015, But a Dud in 2016?

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The volatile swings in the vast consumer retail markets ultimately meant very little for video game manufacturer Activision Blizzard, Inc. (ATVI), which, barring unusual circumstances, will close out another year deep in the black.

ATVI Stock: A Near-Doubler in 2015, But a Dud in 2016?

Since the beginning of January, ATVI stock is among the top-performing assets in the Nasdaq Composite Index, up nearly 98%. In what has been considered by financial experts to have been a very tough year to gain consistent returns, Activision investors have benefited from a stream of core demand and a gaming industry that continues to rise in popularity.

However, as expectations also climb, has ATVI stock overextended itself?

With gaming rivals Electronic Arts, Inc. (EA) and Take-Two Interactive Software, Inc. (TTWO) both registering strong gains in the markets in 2015 — up 49% and 30% year-to-date, respectively — the phenomenal growth spurt in Activision stock is clearly no fluke.

After overcoming a lengthy period of sideways consolidation from 2011 to the end of 2012, ATVI averaged annual returns of 56% over the trailing three years.

ATVI Stock Hitting a Wall?

Significantly, most of Activision stock’s rapid rise in the markets this year occurred in the second half. Average gains for the third and fourth quarters totaled 26%, whereas Q1 and Q2 produced a comparatively meek 11%.

The relative lack of performance in ATVI stock coincided with a steep drop in video game sales earlier in May. According to renowned market research firm NPD Group, the revenue drop was primarily attributed to a lack of consumer interest for the new games that were circulating at that time. Year-over-year comparisons looked especially bad since 2014 featured a number of highly anticipated software releases. For better or for worse, the fate of the broad gaming industry has become largely dependent upon the popularity of individual offerings.

Technically, that shouldn’t be a problem for Activision, which owns several trend-setting brands, including the now ubiquitous Call of Duty series of first-person shooting games. The latest iteration, Call Of Duty: Black Ops 3, rang up more than $550 million in the first 72 hours after its launch in early November. The markets responded eagerly, pushing ATVI stock to nearly 14% for the month.

ATVI stock, annual returns
Source: Source: JYE Financial, unless otherwise indicated

Unfortunately, very few things are black-and-white in the often cutthroat gaming arena. With far less fanfare, software developer Bethesda trumped Activision with the release of Fallout 4, a post-apocalyptic action-adventure title. Sales jumped past $750 million within 24 hours of product launch, which will end up being the fastest selling game of 2015.

Activision stockholders don’t necessarily need to abandon ship right away: no one shot can bring down an empire. To Activision’s credit, they have proactively combated the brand loyalty issue by introducing paid subscription add-ons to their leading titles, thus deriving multiple revenue streams from a single source.

But other companies can do the same thing — and they have — and it still doesn’t address the intense competition that can make or break a product’s marketing campaign.

As evidence of this, we can simply drill down into ATVI’s own portfolio. While Black Ops 3 is the second biggest entertainment-related launch of 2015, its predecessor title — released three years ago — needed two fewer days to hit the $500 million level. Again, not a cause to sound a red alert, but quite plainly, peak momentum has subsided substantially.

Adding to some of the questions surrounding ATVI stock is its most recent price action.

Activision shares have gone nowhere for the current month, up only about 1%. ATVI has also had a limited trading range, with the spread between the absolute high and low for December being 8%. Compare that to 20% in November, and 15% YOY.

Volume, presently at 3.3 million shares, is well under the 8.3 million average over the last three months, and is also noticeably lower against the same winter season from years past.

Bottom Line for ATVI Stock

Overall, Activision continues to be immensely popular with gamers, and this favorable circumstance isn’t likely to change overnight.

With that said, rival companies have threatened to knock ATVI off its perch, demonstrating that even a rabid fan base is no guarantor of dominance.

We must also appreciate the fact that while Activision stock has overall been a strong winner, the markets are getting more leery about doing a repeat in 2016.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2015/12/atvi-activision-stock-doubler-2015-dud-2016/.

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