When I last weighed in on Activision Blizzard (NASDAQ:ATVI), I noted, “With plenty of negativity priced into the Activision Blizzard stock, I’m a buyer on the recent pullback. With new consoles being released in 2020 along with the eSports boom, I would buy ATVI stock.”
That was Nov. 15, as ATVI stock traded at $53. By Dec. 20, shares were up to $59.71 a share.
For the year, ATVI is now up 26% with further upside likely. In fact, by mid-2020, I strongly believe the stock could refill its bearish gap around $77. All as 2020 becomes a gamechanger with a new generation of consoles from Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT).
Activision Stock Has Billions of Catalysts Ahead
One, if there are new consoles on the way, new games will quickly follow from the likes of Activision Blizzard. That’s part of the reason SunTrust Robinson Humphrey analyst Matthew Thornton has a “buy” rating on the stock. He also notes strong execution for recent releases like “World of Warcraft Classic,” “Call of Duty Mobile” and “Call of Duty Modern Warfare.”
Thornton also believes upcoming releases of “Diablo Immortal” and “Call of Duty” will help produce high level revenue growth over the next two years.
Better still, ATVI is expected to benefit as consumers play more games on their smartphones, notes Jefferies’ analysts Alex Giaimo and Ken Rumph. In fact, ATVI’s mobile gaming division in on course to be a billion-dollar business over the next three years.
Jefferies also found mobile should be the fastest-growing segment in gaming, with the sector expected to hit $100 billion in two years with a compound annual growth rate (CAGR) of 11%.
On top of that, ATVI’s eSports involvement will add to its bottom line. Last year, nearly 400 million people watched esports competitions, Needham said. Goldman Sachs thinks eSports revenue could reach $2.96 billion by 2022, as I noted in Nov. 2019.
With all of these catalysts in play, I believe this is a $77 stock by 2020.
Activision Stock Appears Fundamentally Strong
In recent months, ATVI posted third quarter results that came in ahead of prior expectations. Revenue of $1.282 billion was above previous guidance for $1.105 billion. EPS of 38 cents was also better that prior guidance of 20 cents.
“Recent launches have enabled significant growth in the size of our audiences for our Call of Duty and World of Warcraft franchises. We believe we can increase audience size, engagement and monetization across our wholly owned franchises.With a strong content pipeline and momentum in mobile, esports and advertising, we are confident we will remain a leader in connecting and engaging the world through epic entertainment,” said Bobby Kotick, the CEO of Activision.
Even with great earnings, the stock did pull back briefly after noting it expects Q4 revenue less than average estimates. However, not many people are too concerned about this guidance issue. With plenty of 2020 catalysts quickly nearing, ATVI won’t have a problem attracting investors.
The Bottom Line on ATVI
With new consoles on the way from Microsoft and Sony in late 2020 — coupled with mobile gaming growth and eSports — ATVI is one of the best gaming stocks to own in the New Year. In my opinion, ATVI is a strong buy for the long-term with a price target of $77.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.