Activision Blizzard (NASDAQ: ATVI) is an American video game company that includes many iconic titles in its portfolio, including Call of Duty and Guitar Hero. The company’s position as one of the biggest and most successful gaming companies in the world has many investors questioning whether they should invest in Activision Blizzard.
Due to the investment interest in the gaming giant, we have taken a closer look at the company and the opportunity to determine whether Activision Blizzard stock is a buy.
Since this article was originally published, the news broke that Microsoft is buying Activision Blizzard for nearly $69bn. MSFT stock fell 2.4% on the day, and ATVI stock rose over 25%. Clearly, ATVI investors deem this a positive development for the long-term ATVI stock forecast.
But there are no guarantees this takeover will happen, so determining a fair value price for the business independently is also worth consideration.
Last week the European Union competition watchdog announced it intends to pursue an in-depth investigation into MSFT's $68.7bn acquisition of ATVI.
What is Activision Blizzard?
With a history spanning more than 40 years, the company began life in 1979 as Computer Arts, Inc before changing its name to Activision - a combination of active and television.
In 2008 Activision took the decision to merge with another gaming company known as Blizzard Entertainment, and Activision Blizzard was born. The merger brought together the best and brightest creative talent in the gaming industry.
Throughout its history, Activision Blizzard has delivered some of the most iconic video game franchises, including Call of Duty, World of Warcraft and Guitar Hero. The acquisition of King in 2016 saw titles such as Candy Crush Saga being added to its portfolio.
Financial and metrics
Trading on the NASDAQ stock exchange, Activision Blizzard (NASDAQ: ATVI) is considered an excellent performer for long-term shareholders and has featured on the S&P 500 stock market index since 2015.
Gaming has been growing in popularity since the 1980s and is enjoyed by people of all ages and genders. Activision Blizzard's wide range of titles attracts players, both young and old, as well as traditional PC or platform gamers and mobile gamers.
While the company saw a steady incline in its stock price throughout 2020, mainly contributed to the increase in gaming throughout the global pandemic, 2021 was a slightly more turbulent year for the gaming giants.
Reaching its peak stock price of $103 per share in February 2021, negative press around the company’s culture, allegations of misconduct and game delays have seen the stock price fall significantly.
During 2021, the ATVI share price fell 38% from $92 per share at the end of 2020 to $57 in December 2021. Between January and November 2022, the ATVI share price climbed 9%, so there are still buyers looking at Activision Blizzard as an investment opportunity.
The current price-to-sales ratio sits at 8, while the return on equity is 13%.
Is Activision Blizzard a good investment?
There are a number of factors that make the bull case for investing in gaming companies and Activision Blizzard in particular. Firstly, the gaming industry as a whole is one of the most profitable industries in the market, giving gaming company investors the potential for good returns.
Couple this with the rise in the number of gamers in recent years, and this proves the demand is there for good quality, engaging game content. With more than 2.5 billion gamers globally, that equates to nearly a third of the world’s population.
Rewind 30 years ago, and most people that played games were male and young, but today gamers span a wide range of ages, and there has been an exponential rise in the number of female gamers. In fact, 41% of US gamers are female. A number that is expected to continue to rise.
But looking at Activision Blizzard (ATVI stock) specifically as an investment opportunity, it is highly speculative as to whether now could be a good time to invest.
28 FactSet brokers have a consensus Overweight rating on ATVI stock with a share price target of $92.36
What are the risks of investing in Activision Blizzard?
Some investors and traders are currently exercising caution when it comes to investing in Activision Blizzard stock owing to the negative press, company culture issues, allegations of misconduct and the sharp decrease in share price since February 2021.
There are conflicting views on whether the effects of all these factors will be long or short-term, and the reality is no one can accurately forecast what the future looks like for Activision Blizzard. It will be a waiting game to see how the company addresses its challenges.
ATVI has been dealt a blow today as news came that Activision Blizzard games are to go offline in China after its NetEase deal falls through. This means the agreement to distribute World of Warcraft, Overwatch and StarCraft has not been renewed. Blizzard said the partnership is set to expire in January, and new sales will be “suspended in the coming days.” The NetEase agreement in dispute accounted for about 3% of its net revenues last year, translating to roughly $264m in sales.
Another bear case for investing in Activision Blizzard stock right now is the game delays. Two eagerly anticipated titles set for release in 2022, Overwatch 2 and Diablo IV, have been pushed back potentially until 2023.
This setback could make 2022 a less profitable year for the gaming publisher, leaving investors cautious about jumping into an investment. When you couple this with the ongoing issues within the company and a number of creatives and executives leaving Activision Blizzard, it would be fair to say that the future of the company is currently uncertain.
Is Activision Blizzard stock a buy?
If the Microsoft buyout gets approved, ATVI shareholders will receive $95 per share. That's 28% higher than the current share price. So, while there's an opportunity for arbitrage if the deal goes through, doubt has been cast on it happening. And if the deal doesn’t close, the ATVI stock forecast is not so attractive.
The business boomed during the pandemic when everyone was stuck at home, but growth is slowing, and the outlook for Activision Blizzard is not so bright. The gaming industry is heavily saturated, and the global economic downturn is pressuring consumer spending. Both these factors reduce the chance of an upbeat ATVI stock forecast if Microsoft does not complete the acquisition.
Nevertheless, Warren Buffett's Berkshire Hathaway owns a 7.7% stake in ATVI, giving added weight to its future growth potential.
Undeniably, Activision Blizzard investors are going to wait in limbo until the M&A uncertainty lifts.
Article updated November 17, 2022.