Activision Blizzard, Inc. (NASDAQ:ATVI) participates in a competitive space. The Santa Monica-based game maker struggled for most of the decade with declining revenues and falling income. That pattern broke in 2016 when the company returned to profit growth. Through innovation, ATVI stock finds itself well-positioned to return to growth and industry leadership.
However, given the current stock price, this innovation has likely been priced into the stock.
ATVI Pioneered League Play for Its Games
Our own Vince Martin pointed out the concepts that will bring ATVI stock to industry leadership. For one, replacing CDs and DVDs with digital downloads has helped the industry in general. Competitors such as Take-Two Interactive Software Inc (NASDAQ:TTWO) and Electronic Arts Inc. (NASDAQ:EA) have seen their stocks benefit from removing Gamestop Corp. (NYSE:GME) as a middleman.
Another innovation mentioned was the creation of a video game sporting industry called the Overwatch League (OWL).
The World Series of Poker has become a common fixture on sports networks such as the Walt Disney Co (NYSE:DIS) network ESPN. Given that fact, it’s only a minimal stretch to assume video game contests can also gain popularity. So far, OWL has intrigued fans and generated interest with a growing number of local teams competing in a worldwide league.
Games Sales Have Also Helped ATVI Stock
Further, Activision has developed a strong portfolio of game choices since its founding in the 1970s, and this tradition continues today. Although Destiny 2 became its highest-selling game this year, the company has been best known recently for its World of Warcraft and Call of Duty series of games. Call of Duty: WWII brought in $500 million in worldwide revenues during the first three days of its release in November.
Also, buying King Digital Entertainment PLC appears to have been a good move. Critics widely panned ATVI stock when the company purchased King, as the popularity of its flagship Candy Crush franchise had declined.
However, the King property has returned to prominence, with Candy Crush Saga becoming the most popular mobile game in the U.S. for 2017. King has also brought back in-game ads, much like Zynga Inc (NASDAQ:ZNGA) and Glu Mobile Inc. (NASDAQ:GLUU) utilize in their mobile games. As a result, investors now see ATVI’s purchase of King as a visionary move.
The Good News Is Old News for ATVI Stock
Unfortunately for those wanting to buy into ATVI stock, the company’s growing competitive advantage appears priced into the equity. The ATVI stock price currently stands in the low- to mid-$60s per share. This represents an increase of about 80% from year-ago levels. The stock price has also shown little movement over the last three months.
ATVI stock currently trades at about 43 times earnings and almost 26 times future earnings. While growth rates have increased, analysts place the price-to-earnings-to-growth (PEG) ratio at 2.23. This figure stands well above the S&P 500’s average PEG of 1.33. Given these metrics, the current ATVI stock price has moved ahead of growth. While I’m not calling for investors to short ATVI stock, little movement appears likely in the near term.
Final Thoughts on ATVI Stock
By all appearances, the company’s recent innovation and growth has already been priced into ATVI stock. Activision Blizzard has revitalized its existing gaming portfolio and returned its games bought from King to prominence in the mobile gaming space.
The company further bolstered itself by pioneering gaming as a popular spectator sport through OWL. Like poker before it, OWL redefines the concept of sport by making the video screen a field of play that gives viewers something they enjoy watching.
Sadly for would-be investors, though, previous buyers caught on to this trend and bid up the price of ATVI stock. However, prospective buyers should keep watching the equity. Should the stock price fall, investors could gain from ATVI stock in the same way ATVI profited from the purchase of King.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.