Activision Blizzard (NASDAQ:ATVI) stock returned 18.5% in November, including dividends, and is now trading around $54. That’s significantly better than Activision Blizzard’s performance in early June, when ATVI tested $40.
ATVI stock last traded above $80 in September 2018, hitting an all-time high of $84.68 before collapsing to $47 by the end of the year. In 2019, ATVI stock has stuck to a 20-dollar range between $40 and $60.
Is Activision Blizzard stock headed back down to $40 or can it break out to a new all-time high in 2020?
Here are my ideas on both sides of the argument.
Activision Blizzard Stock is Headed to an All-Time High
The video-game company reported reasonably solid earnings in early November that included net bookings of $1.21 billion, $40 million higher than analysts’ average estimate. However,the company forecast just $2.65 billion of net bookings in the fourth quarter, shy of analysts’ average estimate, so Activision Blizzard stock lost its momentum.
ATVI stock has gone sideways ever since.
In a statement released in conjunction with the company’s Q3 results, CEO Bobby Kotick was enthusiastic about some of its video-game franchises.
“Recent launches have enabled significant growth in the size of our audiences for our Call of Duty® and World of Warcraft® franchises,” Kotick said.
“As we introduce mobile and free-to-play games based on our franchises we believe we can increase audience size, engagement and monetization. With a strong content pipeline and momentum in mobile, esports and advertising… we will remain a leader in connecting and engaging the world through epic entertainment,” he added.
In January 2020, Activision will launch its Call of Duty league. A total of 12 franchise owners paid at least $25 million in franchise fees to be a part of the new esports league. That’s a cool $300 million for ATVI before a game’s been played.
Call of Duty is the second league launched by Activision.
On Oct. 6, Activision held the Overwatch League’s Grand Finals, the end of a very successful second season that featured the addition of eight franchise owners, bringing the total number of teams to 20.
In August, I suggested that investors buy Activision Blizzard stock in the low $40s. At the time, it was trading slightly above $50. It’s never fallen below $50 in the three months since.
Given the potential of its esports business, not to mention its free-to-play mobile games, I’m not sure it’s going to fall back into the $40s without some bad news.
Therefore, investors who view ATVI’s glass as half full, as Kotick does, might want to buy some Activision Blizzard stock at current prices and hold some cash in reserve in case it drops back into the $40s.
In the absence of anything unforeseen, I like its chances of maintaining its momentum into 2020.
Activision Blizzard Stock Is Bound to Fall
There is optimism about the sector heading into 2020 because both Xbox and Playstation are bringing out new consoles next year. That will result in a surge of video-game sales as players opt for the latest and greatest console hardware.
That said, it’s impossible to ignore the fact that Activision’s total net revenues for the first nine months of 2019 were $4.5 billion, 12% lower than in the same quarter a year earlier. On the bottom line, it had net income of $1.31 billion through Q3, 6.4% lower than during the same period a year earlier.
Activision Blizzard stock had been in a lull until the fall when ATVI came alive in anticipation of the new consoles.
So the consoles won’t boost ATVI’s revenues until Q4 of 2020 at the earliest, leaving esports and mobile games to carry the load until then.
The odds of a bad-news catalyst emerging over the next four quarters is high. Therefore, there’s an excellent chance of Activision Blizzard stock undergoing a correction over the next 12 months.
It very well could fall back into the $40s in 2020.
The Bottom Line on Activision Blizzard Stock
While I think ATVI stock is worth holding for the long-term, I think the next 12 months could be very bumpy, while the shares could remain in a $40-$60 range.
Can ATVI ever get to $80? Yes.
Can it get to $80 in 2020? Probably not. That’s more likely to occur in 2021.
In the meantime, as I said in August, “If ATVI stock drops into the mid-$40s, I’d be buying by the boatload.”
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.