After Yesterday’s Confusion, Is Activision Stock a Good Buy?

Activision stock a good buy - After Yesterday’s Confusion, Is Activision Stock a Good Buy?

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An interesting thing happened around 2 p.m. ET on Thursday. Shares of Activision Blizzard, Inc. (NASDAQ:ATVI) suddenly started to dive. Shares fell about 6% intraday and for a few minutes, it was unclear what was going on. However, reports began circulating that the company’s earnings results were accidentally released early.

Trading was halted for ATVI before resuming trading around 3:30. The culprit turned out to be Dow Jones, which ran a few incorrect headlines about Activision earnings, using 2017’s revenue number and breaking an embargo in the process.

Despite the inaccuracies, not only did this hit ATVI, but shares of Electronic Arts Inc. (NASDAQ:EA) and Take-Two Interactive Software, Inc (NASDAQ:TTWO) also took a hit.

Many are left wondering, is Activision stock a good buy? For that matter, are any of the video game stocks a good buy?

Let’s look at Activision’s earnings first.

ATVI Earnings

Earnings of 65 cents per share coasted ahead of expectations, as analysts were looking for earnings of just 50 cents per share. Revenue grew 15% year-over-year and beat analysts’ expectations as well. Put simply, the numbers were pretty solid. Shares erased the intraday decline and are currently up 1.6% from yesterday’s open — before any of this started.

So does all this make Activision stock a good buy?

It certainly could, as I’m guessing Thursday’s volatility, unexpected earning release and subsequent stock-trading halt put some investors on the defense. However, it should also be pointed out that the company’s guidance for next quarter also came up a bit short of analyst estimates.

Full-year revenue forecasts of $7.48 billion came up short of consensus expectations calling for $7.51 billion in sales. On the earnings front, management’s guidance for $2.51 per share came up short of the $2.61 per share analysts were looking for.

Is this a big deal? Eh…

In the current environment, it’s not great. But these “misses” are ever so slight. While analysts’ estimates declined slightly over the past month, they’re still higher over the past 90 days. Also consider that ATVI has beat or met expectations over the past eight quarters. It’s likely that this slight shortcoming on full-year estimates could be exceeded throughout the year.

Gaming Industry Remains Strong

Activision has some big updates planned for its games this year and a new iteration of Call of Duty. Historically, CoD Black Ops has done well in terms of sales, but there won’t be a shortage of competition in the space. Nintendo Ltd/ADR (OTCMKTS:NTDOY) continues to do well with its Switch console and Take-Two will launch the long-awaited Red Dead Redemption series later this year.

But the gaming industry in general is in a secular rise, not a decline. Gamers are getting older — and they’re not getting sick of playing. That bodes well for game-makers as well as console makers like Sony Corp (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT). While there is a competition of sorts for games throughout the year — we can only buy so many, right? — it’s not as cutthroat as some make it out to be.

Unlike the auto industry where we buy just one vehicle and are good to go, consumers buy multiple games throughout the year. Heck, some even utilize different systems. The trends from Nvidia Corporation (NASDAQ:NVDA) and the recent earnings results from Advanced Micro Devices, Inc. (NASDAQ:AMD) also suggest the trends are moving in the right direction.

Then there’s the e-sports trend, which only seems to be gaining steam and one where ATVI plays a big role.

Is Activision Stock a Good Buy?

To answer that question, investors have to know their time frame. Are they looking at the rest of the month or quarter? Maybe ATVI stock will be a dud then. But it’s got secular trends working in its favor, so patient, long-term investors will likely be rewarded.

is Activision stock a good buy after ATVI earnings
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Source: Chart courtesy of

On the chart above, those will little to no focus on the fundamental story should avoid ATVI stock if it closes below the 200-day moving average near $65.50. Below this mark and it’s clear ATVI has lost its mojo for the time being.

Over the longer term, the average 12-month price target on ATVI sits up near $80, roughly 20% above current levels. Coincidentally, that’s about where the 52-week high sits as well.

From a neutral perspective, I’m constructive on ATVI stock above the 200-day moving average and $66. But a close over the 50-day and 100-day moving average would make me much more enthusiastic about a potential retest of the highs. Until that happens though, it’s possible Activision stock continues to consolidate its large gains from 2017.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in NVDA and AMD. 

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