Strong Revenues Offset Staff-Cutting Concerns at Activision Blizzard

With the onset of the novel coronavirus pandemic, certain companies thrived even in the worst of circumstances. An obvious example of this would be Activision Blizzard (NASDAQ:ATVI). Throughout much of 2020, the company and investors in ATVI stock fared well as the video-game industry flourished.

Activision Blizzard (ATVI logo on an iPhone with "buy" and "sell" buttons underneath
Source: NPS_87 / Shutterstock.com

Some folks might be concerned that the share price has flown too high. Yet, as I’ll discuss below, the valuation could be viewed as quite reasonable.

That’s not the only concern about Activision Blizzard, though — not by a long shot. In fact, some folks are absolutely disgusted with the company.

So, what’s getting some people riled up about the company? And should current and prospective investors abandon the stock now? We’ll address these burning questions, but first let’s see how the stock has been doing lately.

A Closer Look at ATVI Stock

On March 16, 2020, the world was reeling from the impact of the Covid-19 pandemic. During that time, ATVI stock was trading at around $52 per share.

In hindsight, we now know that this would have been a terrific buy-up price. The remainder of 2020 was an absolute windfall for the shareholders as the stock price climbed relentlessly.

Believe it or not, ATVI finished the year at $92 and change. And that wasn’t even the end of the bull run, as the stock charged ahead in early 2021.

The short-term top appears to have occurred on Feb. 12, 2021, when the stock reached a 52-week high of $104.53. That was followed by a cooling-off period, with the stock settling at $93 on March 31.

Still, we must admit that the run-up in ATVI has been amazing. Does this mean that it’s overpriced now? Not necessarily, as the stock’s trailing-12-month price-to-earnings (P/E) ratio is 32.98.

That’s actually a fairly reasonable valuation, especially for a tech-niche stock. Hence, maybe Activision Blizzard shares aren’t so pricey, after all.

And by the way, the stock pays a forward annual dividend yield of 0.51%. Granted, that probably won’t make you rich overnight, but it’s a nice little added bonus.

The CEO Gets Demonized

If you’re ready for a real shocker, check out Chris Wray’s recently published opinion piece on Activision Blizzard.

In it, you’ll find a picture of Activision Blizzard CEO Bobby Kotick looking like the Devil. And, you’ll find this quote: “Activision Blizzard is, as a company, as good of a definition of evil as is possible.”

The company’s stakeholders will need to get used to the critics’ verbal barbs. Frankly, Activision Blizzard isn’t particularly popular at the moment.

According to Wray, Activision Blizzard posted a record year in 2019, while at the same time laying off more than 800 people.

This year, as Wray reports, the company intends to lay off anywhere from 50 to 189 staff members. Allegedly, their final compensation packages will consist of three months’ severance pay and a $200 gift card.

At the same time, Kotick is reportedly set to receive a cash bonus valued at $200 million.

Ethics vs. Revenues

I’ll be the first to admit that laying off an employee while giving him or her a $200 gift card is rather bizarre.

Plus, Kotick’s proposed cash bonus might leave a bad taste in some people’s mouths.

Therefore, if someone decides to avoid ATVI stock based on ethical concerns, I won’t try to dissuade him or her.

From a purely financial perspective, however, there’s a clearly bullish case to be built around Activision Blizzard. The company’s fourth fiscal quarter was undeniably outstanding:

  • $2.41 billion in GAAP revenues (outlook was $2 billion)
  • $3.05 billion in net bookings (outlook was $2.73 billion)
  • GAAP earnings per share of 65 cents (outlook was 44 cents)
  • Non-GAAP earnings per share of 76 cents (outlook was 63 cents)

Love it or hate it, the company is moving in the right direction in terms of earnings and revenue generation.

The Bottom Line

Whether to invest in ATVI stock or not is a personal decision that might involve a gut check and some soul searching.

Would you feel comfortable owning a stake in Activision Blizzard? That’s the question you’d need to ask yourself.

Whatever you decide, just be sure to know all of the facts before you hit that “buy” button. For better or for worse, the heated debate over Activision Blizzard is, assuredly, far from over.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarketsFinom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. 


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/atvi-stock-strong-revenues-offset-staff-cutting-at-activision-blizzard/.

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