Activision-Blizzard (NASDAQ:ATVI) has performed incredibly well with the novel coronavirus going on. While the rest of the market was hammered, Activision-Blizzard stock fell “just” 21% from peak to trough.
While that may seem like a painful correction, it was much better than the broader market, as well as many individual stocks. For instance, the Nasdaq fell more than 30% from its February high to its March low, while Apple (NASDAQ:AAPL) dropped more than 35%. Many stocks — even high-quality ones — fell 40% to 50% in the decline.
The fact that Activision-Blizzard stock held up so well is great for investors. But even better has been the rebound. Shares are up 45% from the lows and now boast year-to-date gains of 23%. That’s versus a flat performance for the S&P 500.
Let’s look at some catalysts for owning Activision.
Coronavirus as a Catalyst for Activision-Blizzard Stock
Morally, it feels kind of wrong to talk about the so-called “winners” from the novel coronavirus. We’re not specifically looking for stocks that will do well during the pandemic, but instead, looking for good companies that can make it through this period relatively unscathed.
Some are doing better than others, though. For instance, Apple initially took a big hit (even though its stock is at new all-time highs) as sales sank when stores closed. On the flip side, Netflix (NASDAQ:NFLX) saw a surge in demand, as subscribers climbed significantly.
For Activision-Blizzard stock, the latter scenario is playing out — the Netflix phenomenon.
Analysts expect current-quarter revenue to surge almost 40% to $1.68 billion. That compares to full-year revenue growth forecasts of just 12.2%. Current earnings estimates call for 67 cents per share in profit. A month ago, those estimates stood at just 39 cents per share, almost doubling as analysts see the company’s strong demand.
It’s not just Activision-Blizzard stock feeling the love either, it’s the whole industry. Video game sales logged a new April record this year. That followed March, which had its best month in 12 years.
In April, video game hardware and software sales jumped 73% year-over-year. Activision’s latest Call of Duty game remained near the top of the selling list.
The point is pretty simple. Activision already has a solid business, but with Covid-19 accelerating sales, there’s a lot to like in the short term.
From Millions to Billions
There are long-term catalysts for Activision-Blizzard stock as well. Video games and mobile games have proven to be more than just kids’ stuff. As gamers grow older, they aren’t leaving their systems behind. As new gamers enter the mix, it only grows the playing field.
That’s clear just from watching the budding realm of esports, as competitive tournaments and events continue to sell out venues and stadiums. The popularity in gaming is booming and it’s not expected to slow any time soon.
While analysts may predict just 12.2% overall revenue growth this year, alongside 22.7% earnings growth, gaming isn’t just a short-term trend. Just check out the graphic below, showing that the under-18 crowd barely tops the 36-49 years old group.
In any regard, Activision CEO Bobby Kotick said near the end of 2019, “We have 350 million users in 190 countries… I see no reason that number shouldn’t be 1 billion in five years.”
Five years from that point would land us in December 2024 and would nearly triple Activision’s user base. Some investors may be unimpressed. But don’t forget what Apple has done with a growing user base.
Many used to argue that you can only sell so many iPhones — just like I’m sure some would argue that you can only sell so many video games — and yet, Apple stock keeps climbing.
Of course steady iPhone, iPad and Mac sales help, but that’s not where the growth is. Instead, its Services unit is driving the top and bottom line higher. Spun out as its own, the Services business would command a stunning valuation. Activision may not be able to replicate the same success, but with 1 billion users, it has a great chance at driving strong growth.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.