It’s been a rough run for video game stocks, even as the stock market has been bouncing back. Of the “big three,” Activision Blizzard (NASDAQ:ATVI) has easily been the worst performer when compared to Take-Two Interactive (NASDAQ:TTWO) and Electronic Arts (NASDAQ:EA). ATVI stock is down more than 43% over the past year, compared to just 22% and 21% for TTWO and EA, respectively.
But it’s not just competition between the three that are causing issues, there’s also Epic Games — 40% owned by Tencent (OTCMKTS:TCEHY) — which owns Fortnite. And don’t even get me started on the continued momentum of the Nintendo (OTCMKTS:NTDOY) Switch.
That said, Activision has some company-specific issues that have caused it to flounder more than its peers. So what can be done and where should investors turn? More importantly, what’s at stake for Activision stock? First, let’s discuss the elephant in the room: battle royale games.
Activision vs. Fortnite
Fortnite was initially released as a paid early-access title in its PvE (player versus environment) format, now dubbed “Save the World.” But it wasn’t until PlayerUnknown’s Battlegrounds kick-started battle royale into the public consciousness that Fortnite’s own battle royale was born. As a free-to-play title, Fortnite racked up tens of millions of users in a relatively short span. Eventually, it found its way onto mobile as well. While not the first of its kind, Fortnite’s success marked a turning point in the gaming industry.
This allowed the company to hit 125 million users last June and top 200 million registered users before the end of the year. That’s a lot of players for one game. If you’re wondering how the company makes money, it thrives off of in-game purchases. For a while, game-makers were able to sidestep the battle royale trend. But eventually, it caught up with them, Activision included.
However, Activision has had some missteps since. Not only did its competitor Take-Two unveil Red Dead Redemption 2 late last year, but its own Call of Duty game was met with less enthusiasm than in year’s past, despite including its own battle royale mode. To make matters worse, Electronic Arts just released a dedicated battle royale game, Apex Legends. The game should not be taken lightly, with it already hitting 50 million users in just 30 days.
In January Activision announced it will no longer have the rights to its Destiny franchise as well. While some analysts were optimistic about the savings for long-term operating costs, the move dealt a blow to revenue.
Trading ATVI Stock
Click to Enlarge If management is able to quickly right the ship, then ATVI stock may be okay. Remember, shares are down more than 50% from the highs less than six months ago. But it’s hard to say a bottom is in. Above is a six-month daily chart of ATVI stock, while below is a five-year weekly look.
On the daily chart, shares are trying to put in some higher lows after that February 11th drop to $40. However, it remains under downtrend resistance (blue line) as well as the 21-day moving average. The 50-day isn’t doing it any favors either. Until ATVI stock is above these marks, it’s hard to get too bullish or even feel that the stock is done going down.
Click to Enlarge On the weekly chart, it’s more of the same. While we have Activision stock consolidating in the low $40s, it’s also clear the stock has been locked in a deep downtrend.
Once $45 failed to hold, it brought the $38 level into question. I want that level to hold, but it’s unclear if it’s strong enough to support a break of $40.
Should ATVI stock lose $40, $35 could be the eventual bottoming spot, a level that was big-time support in 2016 twice before Activision went on a prolonged rally.
I don’t have confidence in a long setup for ATVI stock at the moment. If anything, going short on a break below $40 gives bears a solid risk/reward, but we’ll have to see how it sets up going forward. It still needs more time for bulls to see a quality setup in my view.