It’s been a rough 2019 for Activision Blizzard (NASDAQ:ATVI) stock. Back in 2018, video-game maker Activision and Activision Blizzard stock could do no wrong. For most of the year, the company was benefiting tremendously from strong new games, deep engagement, and new growth markets, like eSports. In response, Activision Blizzard stock soared over $80 in September 2018.
Then, everything came crashing down for ATVI. The company’s holiday 2018 release slate dramatically underperformed expectations. The whole video-game industry has stumbled in 2019 amid a lack of console and game innovation. Activision’s numbers have dropped. So has Activision Blizzard stock, which has tumbled about 50%. For most of 2019, Activision stock has been trading hands in the $40 to $50 range.
The current weakness will be temporary. ATVI stock is a very promising long-term opportunity for investors. But that opportunity won’t materialize in the near-term. Instead, it likely won’t materialize until late 2019 or 2020, when ATVI’s fundamentals turn around, triggering a huge rally by ATVI stock.
As a result, patience is the key when it comes to Activision stock. In the long-term, those who buy ATVI at its current levels and patiently hold the stock through its near-term volatility will be rewarded.
ATVI’s Long-Term Fundamentals Are Rock-Solid
The long-term fundamentals underlying ATVI stock – and the entire video game industry – are very favorable, and support the idea that Activision stock will be a long-term winner.
Those fundamentals are pretty simple. Consumers throughout the world are increasingly spending more and more of their free time on digital devices, including smartphones, laptops, and smart TVs. . One of the biggest forms of digital entertainment is playing video games on consoles, mobile devices, and desktop computers.
The numbers don’t lie. Nearly 70% of Americans play video games, while global video-game sales are expected to rise about 10% this year, after climbing at a consistent double-digit-percentage pace for the past several years. This double-digit growth rate across the whole industry will likely persist for the foreseeable future, supported by: 1) the shift towards digital consumption, 2) continued global urbanization, and 3) continued innovation throughout the industry.
Activision has high-quality exposure to all aspects of the video-game industry. On the console front, Activision is behind the arguably most successful console franchise ever, Call of Duty. On the mobile front, Activision owns two gigantic mobile franchises King and Candy Crush. ATVI is also creating mobile versions of its existing franchises, including Call of Duty. With respect to eSports, Activision is broadly considered the industry leader.
All in all, ATVI has high-quality and broad exposure to the video-game market, which has become a non-cyclical growth sector. Thus, in the long-run, Activision’s top line looks poised to increase by double-digit percentage levels with largely stable margins. That’s a long-term winning combination which should power ATVI stock higher.
Powerful Positive Catalysts Are on Their Way
Anyone who invests knows that beaten up stocks don’t just magically turn around one night. Instead, something has to happen which “wakes up” the stock and turns a multi-quarter downtrend into a multi-quarter uptrend.
That’s true for Activision stock. Although ATVI stock has been arguably undervalued for the past eight months, it has failed to rebound because its numbers and the broader trends of the gaming industry have remained weak. These weak numbers and trends will persist for the next few months. But they should reverse tremendously in 2020.
In 2020, the video-game industry will benefit from a number of demand tailwinds. First, and most importantly, the next generation of Xbox and Playstation consoles, the first new Xbox and Playstation consoles in several years, are set to launch in 2020. .Naturally, that will meaningfully lift demand for video games. Second, cloud gaming will become mainstream in late 2019 or early 2020. That, too, should significantly lift demand across the whole industry.
Meanwhile, with respect to Activision specifically, the company’s new Call of Duty Global League is set to debut next year. If that goes well (all signs indicate that it will), investors’ optimism towards the outlook of Activision’s eSports business will be revitalized. Also, the games that ATVI is due to release in late 2019 – headlined by a new Call of Duty game – look promising, and could similarly produce a nice rebound in the company’s numbers and investors’ views on Activision Blizzard stock.
Both of those catalysts will provide a lift to ATVI stock. Broadly, then, Activision stock looks due for a huge rebound in 202o, meaning that investors who buy Activision stock on weakness in 2019 and hold it for awhile will ultimately be rewarded in a big way.
The Bottom Line on ATVI Stock
When it comes to Activision stock, patience will be rewarded. It’s been a rough few months for this video-game publisher. But its long-term fundamentals are healthy at this point, and indicate that it will generate non-cyclical growth. Near-term headwinds are simple clouding the visibility of those promising long-term growth prospects.
By 2020, these near-term headwinds will cease. They will be replaced by near-term tailwinds. That transition will ultimately spark a huge rebound rally by ATVI stock, meaning that investors who buy Activision stock on weakness and hold it through the noise of 2019 will ultimately be rewarded.
As of this writing, Luke Lango was long ATVI.
