Is Activision Blizzard, Inc. (NASDAQ:ATVI) a cheap stock? Not necessarily. And it’s not exactly the safest stock to be long when the market is taking a beating. However, with Activision stock pulling back hard off its highs, investors may have a very solid buying opportunity in front of them.
Let’s take a quick look at the ATVI stock chart.
Trading Activision Stock
Below its 100-day and 50-day moving averages, there’s obvious short-term weakness in the name. However, ATVI stock is clinging to its 200-day moving average, which so far, is holding up as support. Over the past year, we’ve seen this moving average tested just once — in December — where it held and led to a $10 per share or roughly 17.5% rally.
Will the same happen again?
In December, the 200-day support level was enough to boost Activision stock to new highs, to just above $66 per share. This level had been resistance since September, finally giving way in early January before acting as support in February. The hope here is that ATVI stock will get back above this level and it will again act as support.
Combined with the test of its 200-day moving average and some bulls are surely hoping it leads to new all-time highs again. If so, that would push Activision stock up to about $80 per share, about 23% above current levels.
Video Game Backdrop
The charts tell a pretty convincing tale, but do the fundamentals tell a similar story? While ATVI stock may seem expensive, it’s actually in the midst of a growing secular theme.
Console games haven’t died off the way many predicted in the past at the hand of more robust mobile offerings. While Apple Inc. (NASDAQ:AAPL) certainly benefits from consumers’ willingness to spend on apps for their iPads and iPhones as seen by the strong growth of its services segment video game companies are doing well too.
Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY), Electronic Arts Inc. (NASDAQ:EA), Take-Two Interactive Software, Inc (NASDAQ:TTWO) and other game-makers are enjoying the ride too.
If you listen in on the conference calls from Nvidia Corporation (NASDAQ:NVDA) and/or Advanced Micro Devices, Inc. (NASDAQ:AMD), you’ll also know that demand for gaming chips remains robust as well.
All in all, there’s really no reason to expect a big drop-off here. Demand is strong as consumers clearly like to game. As the younger generations age, data shows (source: page 42 of presentation) they are not sacrificing their gaming the way one might expect from a “traditional adult.”
That’s obviously good news for video game companies, as an avid 35-year-old gamer earns more income than a 15-year-old gamer. Thus, there’s more disposable income to snag.
ATVI Story
Let’s get more specific with Activision stock. What can we look forward to this year? This most recent iteration of Call of Duty was the company’s WW2 edition. It’s the first time we’ve seen a WWII game in years and it was met with great demand.
However, this year’s edition will be Black Ops 4, with Black Ops being the franchise’s most popular line. The game will launch Oct. 12 and should generate massive revenue for Activision.
There’s also the Overwatch League. While this may not necessarily be a huge profit driver now, its potential is undeniable. As video game streaming becomes more popular and demand remains healthy, many viewers continue to tune into live-game streaming events. In other words, eSports continues to do really well!
Activision’s Overwatch league is a leader in this regard and investor appetite remains healthy. There are currently 12 teams in the league, which sold for $20 million apiece. According to reports though, new teams could cost double to triple that amount in an expansion. There’s clearly demand now that there’s a proven model and business to work with.
All of this is just another leg in the growth story for Activision stock.
As we said in the intro, Activision stock isn’t exactly cheap, at least on an earnings per share basis. The company does generate plenty of cash flow, which tends to be ignored by many investors, likely because too many people discount its impact. But its success is hard to deny and as it builds out an ecosystem of sorts in the gaming world, the company (and its shareholders) should be rewarded.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in AAPL, NVDA and AMD.
