Of all the plays in the gaming universe, the analysts’ favorite is Activision Blizzard, Inc. (NASDAQ:ATVI).
That starts with a broad line-up of franchises. The Activision unit does first-person shooters like Call of Duty, Blizzard has immersive multiplayer adventures like World of Warcraft and Overwatch, and King, acquired for almost $6 billion in 2015, has the Candy Crush franchise.
Games, unlike movies, can be renewed year after year, and Activision Blizzard is great at monetization. They’re also leading in making gameplay a spectator sport with their Overwatch League.
That’s why three out of every five analysts following ATVI stock have it rated as a buy despite it selling at nearly 8 times sales.
Activision Stock Beating the Number
The one game a stock has to win at is “beating the number” — that is outperforming the analysts’ quarterly estimates for revenue and earnings.
ATVI lost at this for its most recent quarter, with earnings of 45 cents per share falling 48 cents short of estimates. But revenues of $2.64 billion beat estimates by nearly 8%, and after a brief sell-off on Feb. 9 the stock was off to the races again, and now trades 5% higher than it did when the earnings came out.
The Donald Trump tax cut made the December books a bit of a muddle. While CEO Bobby Kotick claimed a non-GAAP earnings per share figure of $2.21 in his earnings call, a one-time tax charge meant to take advantage of future, lower rates meant a loss under GAAP of 77 cents per share.
Kotick is a legend in the gaming industry who bought into Activision stock when it was on the brink of insolvency in 1991, engineered its merger with Blizzard, and made over $33 million last year. He focused his discussion about the quarter on the Overwatch League, known as OWL, which drew 10 million viewers to its live streams of people playing the company’s games, with 12 team owners around the world, and theater-like arenas in Los Angeles and Taipei.
For investors who bet on the jockey and not on the horse, Kotick is a dream come true. In the last 10 years the stock has split 2:1, initiated an annual dividend and risen 437%. His strategy is to give his studio heads autonomy within their divisions and direct strategy toward the industry’s interests in being seen as a good corporate citizen, founding the Call of Duty Endowment, which seeks to build careers for former servicemen.
The Bottom Line
ATVI is a growth stock and is not invulnerable to a shifting of the investment winds. Its fall in early February came along with that of the Nasdaq average, but its rise since has been sharper, leaving it up 15% since the start of the year.
On Feb. 1, right before its wild fall and rise, our Luke Lango pounded the table for the stock, calling it “a buy here and now.” He liked the eSports launch and the micro-transactions generated by Candy Crush, capable of growing into its valuation.
That call turned out to be accurate. What’s more important though is the consistency with which Activision Blizzard delivers earnings under Kotick, in an industry that is prone to wild swings as gamers switch among platforms, games and events with the consistency of teenage girls chasing the latest boy singer. So long as Kotick is in charge, Activision stock is a winner.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.