Activision Blizzard (NASDAQ: ATVI) is an American video game holding company that includes many iconic titles in its portfolio including the 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 considering whether they should be investing 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 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%.
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 attract 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 has been 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.
Year-to-year, the share price has decreased by 31% from $88.81 per share in December 2020 to $61.36 in December 2021. The current price-to-sales ratio sits at 5.07, while the operating margin is 29.21% and the return on equity is 16.88%.
With a market capitalization of 47.29B USD, a trailing twelve month revenue of 9.05B USD and a P/E ratio of 17.97, coupled with the current lower share price many investors are looking at Activision Blizzard as a possible investment opportunity. Not only does investment in Activision Blizzard offer the potential for good long-term returns, but it also pays dividends to shareholders.
Its Board of Directors declared a cash dividend of $0.47 per common share to be payable on May 6 2021 to all shareholders of record at the close of business on April 15 2021. Future dividends will be determined by the Board of Directors and will depend on the company’s future earnings, financial conditions and cash requirements.
It is important to note that cash dividends from investments may be liable for tax which can impact the total return on investment.
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, making investments in gaming companies a 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 the majority of 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 specifically as an investment opportunity, it is widely considered in the finance world that now could be a good time to invest. With a share price at its lowest in 18 months, right now may present the perfect opportunity to invest in the gaming company.
While the negative press may make some investors wary, a refreshed leadership team and possibly a new CEO could reform the company culture to help the company progress on its long-term growth trajectory.
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.
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 in fact be a waiting game to see how the company addresses it challenges.
While some investors may, after careful analysis of all the factors, decide to invest in the gaming company, it is expected that others will hold back until the company’s future is clearer.
Perhaps the biggest bear case for investing in Activision Blizzard stock right now is the game delays. Two eagerly anticipated titles that we 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?
Undeniably, Activision Blizzard is undergoing a period of uncertainty and change. Game delays and changes to the creative and executive teams may cause further uncertainty in the short term but could reap big rewards in the long run.
Also, the current lower share price makes buying Activision Blizzard stock attractive to some investors, but less so to those who are more risk-averse. A thorough analysis of the company and the market would be required to ensure investors were making a sound investment decision.