Activision Blizzard, Inc. (NASDAQ:ATVI) has more games than just Call of Duty. However, this blockbuster franchise just released a new game weeks before the holidays. Obviously, this was not a coincidence and should drive sales significantly higher. What does that mean for the ATVI stock price?
Call of Duty sales topped $500 million within the first three days of the latest game’s release. While the reviews on Amazon.com, Inc. (NASDAQ:AMZN) aren’t stellar — 3 stars out of 5 for the Microsoft Corporation (NASDAQ:MSFT) Xbox One version and 3.5 stars out of 5 for the Sony Corp (ADR) (NYSE:SNE) Playstation 4 edition — I have no doubt sales will fly throughout Black Friday, Cyber Monday and in the weeks leading up to Christmas Day.
Will Call of Duty WWII go down as a disappointment? I think the real question is: will it matter? Sales will still be robust and, in my view, too many investors are still overlooking how a strong economy will impact the holidays. While the holidays have been strong over the last few years, this year seems different. There’s finally some confidence things will be good for a while. And when consumers have confidence, they loosen up the wallet.
While more than video games are on the list, expect Electronic Arts Inc. (NASDAQ:EA) to sell a lot of Madden, Take Two Interactive Software Inc (NASDAQ:TTWO) to sell plenty of NBA 2K and Activision to sell a boatload of Call of Duty.
What Else Is There?
One of the most popular games in the world — World of Warcraft — is also an Activision product and the company also produces Destiny, one of the most popular franchises to have launched recently. In fact, Destiny became the most successful launch in Activision’s history.
Call me crazy, but in a way I view Activision a bit like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) or Apple Inc. (NASDAQ:AAPL). There are stark differences to be sure, but these successful companies all employ similar strategies. They develop a workhorse product or products — the iPhone, iPad and Mac, for instance, or search and advertising in the case of Alphabet — then they have “other bets” (as Alphabet calls them) that have strong growth and will hopefully pay off in the long-term.
Activision’s workhouses include Call of Duty, World of Warcraft and Destiny. Year in and year out it can count on those sales to drive its top and bottom lines. That allows the company flexibility in future endeavors.
For instance, its acquisition of King Digital allows Activision to further push into mobile gaming. The gamemaker, known for Candy Crush, gives ATVI a blueprint to succeed in mobile gaming, where many kids get their start with an iPad or tablet at just a few years old.
Another outlet is e-sports. While this has yet to gain traction among investors, e-sports is quietly becoming a very noteworthy industry. Sponsors, leagues and collegiate scholarships are happening right now and with its Overwatch League and Major League Gaming (MLG) organizations, Activision is a leader in this emerging trend. That should continue for years to come and have large implications for ATVI’s business.
The Bottom Line on ATVI Stock
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We’ve talked a lot about Call of Duty, Destiny and e-sports. All three (and many more, to be honest) will help drive ATVI’s fourth-quarter results higher. The anticipation of a strong holiday should help push the ATVI stock price to new highs.
Since breaking through $61 in July, the $61 to $67 range has held steady. While ATVI stock price is up a robust 82% so far this year, shares have actually done a good job consolidating near current levels, which gives us something to trade against.
I have been bullish on ATVI stock in the past, even recently saying a buy in the low $60s may be your best bet at getting in the stock now. Should ATVI stock price push through $67, it could trigger a breakout. Currently near $66, chasing it now risks $67 holding firm as resistance and ATVI falling lower. Let’s either wait for a breakout over $67 or for a pullback into the low $60s.
Admittedly, trading with a forward price-to-earnings ratio of roughly 25 is not cheap — particularly with just 6% revenue growth and forecasts for 15% earnings growth in 2018. However, Activision is the leader in a secular growth industry and should continue to do well in the future.
Using the support and breakout levels noted above help us limit our risk and maximize our reward. Further, a “basket approach” with EA, ATVI and TTWO could help limit individual exposure to any one company.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
