For the past five years or so, Activision Blizzard (NASDAQ:ATVI) has been a reliable investment. During this period of time, the average annual return for ATVI stock was about 23%.
But lately, things have been much different. Activision Blizzard stock has been in a horrific bear mode. Since late September, the shares have plunged from $83 to $47.
And yes, other top gaming operators Take-Two Interactive (NASDAQ:TTWO) and Electronic Arts (NASDAQ:EA) have also suffered from steep declines.
So what’s the problem? And might there be a value opportunity with ATVI stock?
Well, for the most part, the latest earnings report was a mixed bag. While Activision Blizzard did beat on the top and bottom lines, the guidance for the fourth quarter was light. This is certainly worrisome since it is the most important quarter!
Then again, it looks like the hugely successful Fortnite game has been eating into the market of ATVI. Launched in 2017, the game already has 200 million registered users and 8.3 million concurrent players.
The “Battle Royale” mode — which involves placing 100 people on a island to fight to the death — has definitely been highly engaging. Oh, and Fortnite is free to play. To monetize things, players make purchases of digital items. All in all, it has become a money machine.
The creator of the game, Epic, has wasted little time capitalizing on the popularity. There is a new eSports league as well as lucrative sponsorship and merchandising deals. Epic also recently snagged $1.25 billion in investments from investment firms KKR (NYSE:KKR), Kleiner Perkins, Lightspeed Venture Partners and aXiomatic. Previous investors include Tencent Holdings (OTCMKTS:TCEHY) and Disney (NYSE:DIS).
Not Over For ATVI Stock
Despite all the momentum with Fortnite, Activision Blizzard stock should not be considered a lost cause. Let’s face it, the gaming industry is boom-bust. And there are already some signs of fatigue with Fortnite, as seen with deceleration in viewers on Amazon.com’s (NASDAQ:AMZN) Twitch.
Besides, ATVI still has a powerful, platform. Keep in mind that the company has a solid track record of sustaining franchises, such as World of Warcraft, Candy Crush and Call of Duty.
Here are some metrics to consider:
- The total MAUs (Monthly Active Users) is 345 million.
- The King mobile apps business has 262 million MAUs, with two of the top-10 highest grossing apps in the U.S. (for twenty consecutive quarters).
- In the quarter, players spent 52 minutes per day on Activision, Blizzard, and King games.
ATVI’s eSports segment, called Overwatch League, is also seeing lots of traction. There are now 20 teams — nine of which are outside the US. In fact, ATVI announced six sales in September — all at much higher valuations.
According to research from ResearchAndMarkets.com, the revenues in eSports are forecast to go from $926.3 million in 2018 to $2.17 billion by 2023. This comes to a compound annual growth rate of 18.61%.
The Bottom Line on ATVI Stock
Granted, Fortnite has certainly been disruptive to the gaming industry. But ATVI is not sitting still as the company has been making changes to its own games. Besides, blockbuster titles inevitably slowdown. This will be no different with Fortnite.
It also looks like much of the bad news is baked into ATVI stock anyway. Consider that the forward price-to-earnings multiple is a very attractive 17x. This is fairly good for a leading company in an industry that is likely to see robust long-term growth.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
