Does Activision Blizzard (NASDAQ:ATVI) stock have more room to run? It’s a natural question to ask when you consider the Santa Monica, California-based video game maker’s stock has run up 181% since 2015 when it was first added to the S&P 500 index. Year-to-date, ATVI stock is up 40% and matched the share price appreciation of the broader video game segment.
With people sticking closer to home during the pandemic, video games have become a popular outlet. That fact has propelled the stock of companies such as Activision Blizzard higher.
The company reported that it added 100 million new online gamers during the second quarter. They flocked to its marquee titles such as “World of Warcraft” and “Call of Duty.”
Yet despite the blockbuster quarterly results, Activision Blizzard’s stock has paused in recent weeks and is trading around $82.
Investors are waiting to see if Activision Blizzard can sustain the strong growth recorded during the spring quarter when Covid-19 lockdowns were at their peak. The fact that the company publicly announced that it expects growth to moderate during the third quarter hasn’t helped.
Investors need to be reassured that the leadership of Activision Blizzard has a plan in place to capitalize on its recent success and keep gamers hooked on its titles.
Popular Franchises
Video games are the fastest growing entertainment segment. A total of 244 million Americans, roughly 75% or three-quarters of the population, now play video games on a regular basis, up 32 million since 2018, according to market research firm The NPD Group.
And among video game makers, Activision Blizzard is the largest, ahead of rivals Electronic Arts (NASDAQ:EA) and Take-Two Interactive (NASDAQ:TTWO) in market capitalization and share.
The company currently produces many of the most popular game franchises in the world. Activision Blizzard also makes popular titles such as “Candy Crush,” “Guitar Hero” and “Tony Hawk’s Pro Skater” series, to name only a few.
Activision Blizzard counts 428 million active gamers around the world, up 30% from 327 million in 2019. The company has an 8.31% share of the video game market.
While Activision Blizzard performed well and gained considerably from the global pandemic, the industry is going through change and disruption. The current trend is toward games that are free to play such as the wildly popular “Fortnite.” The move to free-to-play games is forcing game studios to rethink how they monetize their products.
Video game infrastructure is also changing as Google (NASDAQ:GOOGL), NVIDIA (NASDAQ:NVDA) and others launch subscription-based game streaming services. The free-to-play and streaming formats are challenging established game makers such as Activision Blizzard to adapt.
Next Gen Gaming
While Activision Blizzard may operate very differently five from now, in the near term it will benefit from the impending launch of next-generation game consoles. This Christmas will see a number of new video game consoles arrive, including the Xbox Series X and PlayStation 5. Activision Blizzard is ready with a number of new games from its most popular franchises.
Management at the company forecasts that revenue for the full year will rise 5% from 2019.
Activision Blizzard is adapting to also focus on video games designed to be played beyond consoles. This includes tablets, cloud gaming and competitive gaming that occurs on custom-built personal computers.
Many Activision Blizzard franchise titles, notably “Call of Duty,” are popular with competitive gamers and the company made a significant move into competitive gaming by creating the Overwatch League” for professional competitions.
The company has even signed an agreement with Disney’s (NYSE:DIS) ESPN to broadcast matches on television.
Activision Blizzard also acquired several mobile game developers, such as King Digital, to secure access to that lucrative market through popular game such as “Candy Crush.”
Growth Potential for Activision Blizzard Stock
Activision Blizzard looks prepared to go wherever the gaming industry takes it.
While the explosive growth of this year’s second quarter might subside, the company continues to have its pulse on the industry. It adapts to shifting trends and consumer tastes. Console gaming might be cooling off, but Activision Blizzard is prepared to follow gamers to the cloud and beyond.
With the video game industry showing no signs of slowing down, investors shouldn’t expect Activision Blizzard to pump the breaks anytime soon.
Analysts who cover Activision Blizzard stock see more growth ahead. The median forecast of 21 analysts who cover the company is for ATVI’s share price to trade at $97 a share within the next 12 months, an increase of nearly 20%.
The high price target on the stock is $116.60 a share. The company’s stock currently has a consensus “buy” rating and no “sell” ratings on it. While the company’s share price may have stalled in recent weeks, it is likely only a temporary breather before its next run higher.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole owned shares of DIS and NVDA.
