Activision Blizzard, Inc.: ATVI Stock Is a Winner, But It’ll Cost You

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Gaming stocks were smacked hard in January along with the rest of the stock market, and Activision Blizzard, Inc. (NASDAQ:ATVI) took another nosedive after an earnings miss in February and again after the Brexit vote. After all the knocks, however, ATVI stock has rallied back in a big way.

Activision Blizzard, Inc.: ATVI Stock logo

Source: Activision Blizzard

When all is said and done, ATVI stock is up more than 10% so far in 2016, including a 50% run from its February lows.

The question is, after all that, does Activision Blizzard have anything left to give? After all, most signs point to this being a solid stock, but the argument instead is whether ATVI stock is a great buy at its current price.

Power-Ups for ATVI Stock

First, let’s look at ATVI stock’s most recent new venture — branching onto the big screen. The domestic numbers for Warcraft were cringeworthy — less than $47 million domestically so far against a budget of $160 million. But look at the numbers from overseas and the story changes significantly.

With China expected to become the biggest movie market in the world soon — perhaps even next year — it flexed that leverage in a big way. As a result, the foreign box office for the movie was more than eight times the U.S. take, and more than half of that came from China.

The stock dropped about 4% from midday June 9 through early June 13 as domestic numbers and reviews came in, but the following day, despite a down market, ATVI actually gained more than 2% after the China news.

That’s not the only good thing Activision Blizzard has going for it lately. A new IP in the form of the game Overwatch had more than 7 million users join in the first weekend, and brought in $269 million in May, according to SuperData Research. The game contributed to an 11% pop in overall May video game sales this year.

Later this summer, the Godzilla of MMORPGs, World of Warcraft, releases a new expansion.

Meanwhile, the Activision side of things showed off its next Call of Duty game, Infinite Warfare, with a new trailer at major gaming conference E3, along with an expansion to 2014’s Destiny.

None of these will probably be a huge mover for ATVI stock earnings on its own, but all together? Barring catastrophe, this should be a good year for Activision Blizzard.

And don’t forget, Activision continues to look for ways to expand out of just the gaming niche. In addition to the previously mentioned cinematic foray, it’s also moving into streaming. We don’t know yet fully how its purchase of Major League Gaming is going to affect the stock, but that combined with a recently announced partnership with Facebook Inc (NASDAQ:FB) to stream games can only help in ATVI’s goal to become the ESPN of esports.

Making it easy for fans to watch their favorite games live on Facebook could in turn start putting pressure on Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube and Amazon.com Inc.’s (AMZN) Twitch.

According to information from Gamoloco, ATVI owned four of the top-10 most streamed games in June — Hearthstone, Overwatch, Call of Duty: Black Ops III and World of Warcraft. Several of its others are routinely seen in the top 20 on Twitch.

That’s a lot of heft in a streaming market that, according to Newzoo, is expected to hit $463 million this year and over $1 billion by 2019.

When it comes to live streaming, Twitch is the big name in the space right now. What does Facebook have to help it compete? Numbers. Twitch has more than 100 million monthly active users to Facebook’s 1.5 billion-plus. That’s a lot of eyes.

Concerns about monetization for the streamers still need to be worked out, but Facebook is one social media company that has a good handle on how to monetize its offerings.

Activision Blizzard by the Numbers

Financially, Activision Blizzard looks OK … but just OK.

Over the past year, its cash reserves have dropped nearly $2 billion while long-term debt jumped up by about $1.8 billion. The result is debt that outweighs Activision Blizzard’s cash on hand nearly 2-to-1. And ATVI stock does boast a dividend, but at 26 cents annually, it’s not going to do anything for income investors.

Revenues have been riding a bit of a roller coaster over the last few years. Still, analysts remain upbeat about the stock, looking for a 37% increase in revenues this year before slowing to 10% next year.

Unfortunately, that growth is more than priced in right now. ATVI stock trades for 38 times trailing-12-month earnings, and 20 times 2017’s expected earnings. Not a great score.

All in all, it might be game on in ATVI stock for investors if shares fall significantly amid a broader pullback, and the stock’s certainly worth holding onto if you’re currently invested.

But while ATVI could be a winner, it’s far too expensive right now.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/activision-blizzard-atvi-stock-win/.

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