Activision Blizzard (NASDAQ:ATVI) again must contend with considerable changes in the gaming landscape. As mobile games gain in popularity, the industry continues to evolve as cloud and virtual reality (VR)-based games begin to draw the attention of gamers. Many wonder how this will affect Activision Blizzard stock longer term.
However, both gamers and investors should remember that Activision has changed with the gaming industry since its founding 40 years ago. Although ATVI stock could struggle during the transition, a new generation of games could eventually lift ATVI.
ATVI May Not Benefit from Changes in Gaming Industry
The last time I wrote about Activision Blizzard stock, I speculated whether it would thrive or merely survive. ATVI owns popular franchises such as Call of Duty and World of Warcraft. Moreover, the industry continues to grow rapidly. It generated $131 billion in sales in 2018. By 2025, analysts expect that figure to reach $300 billion.
Unfortunately, few signs have emerged that this will benefit Activision Blizzard stock proportionally. This is not just pressure from traditional rivals like Electronic Arts (NASDAQ:EA) and Take-Two Interactive (NASDAQ:TTWO). The success Epic Games enjoyed with Fortnite as well as mobile competition from Zynga (NASDAQ:ZNGA), Glu Mobile (NASDAQ:GLUU), and others also remains a factor. Like in previous decades, competition and changing platforms have again forced Activision to change.
Consoles May Eventually Disappear
Moreover, the industry has begun to turn away from console-based games. Console games may see some activity as manufacturers release their next-generation products. However, gamers increasingly turn to PC for speeds and mobile devices for portability. Cloud gaming and VR gaming have also begun to emerge. All of these changes could soon make consoles obsolete.
The company has not ignored mobile or any other trend. As Thomas Niel points out, the company launched a mobile version of Call of Duty. Moreover, the Overwatch League makes them a leader in the emerging video game competition niche.
However, winning with ATVI stock takes a different skill set than becoming an Overwatch League champion. No question the competition has changed Activision Blizzard stock. The forward price-earnings (PE) ratio has fallen to 21.9. This represents a change for a stock that maintained an average multiple above 50 in previous years.
Still, the company may see somewhat of a revival. Analysts predict a profit decline of 15% for this year. However, they also believe fiscal 2020 will see a profit increase of 13.1% as companies release a new generation of consoles. Unfortunately, with consoles on the decline, they do not believe the growth rate will last. Analysts forecast average earnings increases of 4.91% per year over the next five years.
Wait for More Clarity with ATVI
This has left Activision Blizzard stock in an uncertain position. It has climbed steadily since the spring and trades near a 52-week high. However, it still sells for well below the highs of around $85 per share, its peak in October 2018.
Despite the uncertainty, I do not think investors should completely give up on Activision Blizzard stock. Activision has remained in business since 1979 when it originally developed games for the Atari 2600. It has migrated to numerous new platforms over the years and has evolved with the changing gaming landscape.
Now, with VR and cloud gaming on the rise, ATVI must pivot again as the console looks poised for a decline. However, I see few reasons why this strategic change will not happen. Although I would not buy Activision Blizzard stock for now, I think investors should look for signs of a comeback as they evolve along with their industry.
The Bottom Line on Activision Blizzard Stock
Activision Blizzard stock will eventually recover as the company embraces new gaming platforms. However, with a relatively high PE ratio and a slowing growth rate, investors should not buy at these levels.
ATVI stock continues to feel the heat of its competition. Falling profits have subsequently led to struggles. For now, Activision Blizzard stock has climbed steadily higher, moving toward 52-week highs. However, it still sells for well below its price in October 2018. Moreover, doubts about where Activision goes as gamers move away from consoles remain.
Activision has survived and often thrived amid new generations of gaming products. I think the company will pivot again. However, until this move shows up in the growth numbers, investors will struggle to profit from playing Activision Blizzard stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.