Activision Blizzard, Inc.

ATVI Details

Activision Blizzard, Inc. (NASDAQ: ATVI) is engaged in the development and production of interactive entertainment content for video game consoles, personal computers (PC) and mobile devices. It operates via 1) Activision Publishing, Inc., whose key product offering is the Call of Duty League franchise; 2) Blizzard Entertainment, Inc., focused on the digital distribution of Blizzard and Activision games, online social networking, and user-generated content development; and 3) King Digital Entertainment, which is famed for the Candy Crush saga. As of November 02, 2021, the company's market capitalization stood at USD 60.40 billion.

Latest News:

• Strategic Acquisition: On October 28, 2021, the company closed the acquisition of Digital Legends, a mobile game developer based in Spain, for an undisclosed consideration. ATVI plans to use this newly acquired independent game development studio for support in launching a new mobile app within its Call of Duty franchise.

Q3FY21 Results:

• Marginal Revenue Growth: The company reported a 5.94% increase in total net revenues to USD 2.07 billion in Q3FY21 (ended September 30, 2021) compared to USD 1.95 billion in Q3FY20.
• Improvement in Net Income: Q3FY21 net income increased to USD 639 million from USD 604 million in Q3FY20, representing diluted earnings per share (EPS) of USD 0.82.
• Strong Balance Sheet: As of September 30, 2021, the company had cash & cash equivalents (including money market and other short-term investments) of USD 10.00 billion and total debt of USD 3.61 billion.

Key Risks:

• Franchise Concentration: 76% of ATVI's FY20 revenues were generated from sales associated with Call of Duty, Candy Crush, and World of Warcraft franchises. Such over-reliance on a few product categories could harm the companies' operations in the long run.
• Third-Party Dependence: The sales of ATVI's products are highly dependent on the success and general acceptance of third-party video game consoles, with games for Sony's PS4 and PS5, Microsoft's Xbox One and Series X, and Nintendo's Switch, accounting for a significant chunk its net revenues. Any decline in consumer demand for such consoles could impact the company's financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ATVI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ATVI's current share price is leaning towards the lower end of its 52-week range of USD 71.19 to USD 104.53. The stock is currently trading below its 50 and 100 DMA levels, and its RSI Index is at 47.82. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 73.77.

Considering the very slight movement in the stock price in the past twelve months, largely stable top and bottom-line performance, and current trading levels, we recommend a "Sell" rating on the stock at the closing price of USD 77.67, down 2.12% as of November 02, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.  

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