Will Activision Blizzard Stock Continue To See Lower Levels?

[Updated: Nov 17, 2021] ATVI Stock Decline

The stock price of Activision Blizzard (NASDAQ: ATVI) saw a decline of 6% yesterday (Nov 16) after reports that stated Bobby Kotick, the CEO of the company, was aware of sexual misconduct, including an alleged assault. ^[1] Employees of the company staged a walk-out demanding the resignation of Bobby Kotick.

ATVI stock has been hammered over the recent months with multiple negative developments. First it was the declining user engagement levels compared to the peak seen during the pandemic, as people spent more time on gaming with shelter restrictions in place. This was followed by a California based agency filing a lawsuit against Activision Blizzard for sexual harassment and discrimination, and it has been in the limelight over the recent months. Recently, the company announced a delay in two of the much awaited games – Overwatch 2 and Diablo IV. Lastly, the recent report of the CEO being aware of sexual misconduct in the company sent ATVI shares down. In fact, ATVI stock is down a large 28% over the last six months, compared to 12% gains for the broader S&P500 index.

While going by our Activision Blizzard Valuation the stock appears to be undervalued, the negative developments surrounding the company are not sitting well with the investors, resulting in lower levels for ATVI. At its current level of $66, ATVI stock is trading at just 18x its expected EPS of $3.72 in 2021, compared to an average P/E multiple of 24x between 2017 and 2020. As such, we believe that the long-term investors can use the current dip as a buying opportunity in ATVI stock, but they should also weigh the near-term risks surrounding the company.

Now, what about near term? Is ATVI stock poised to see higher levels in the near term or is a fall imminent? Based on our machine learning analysis of trends in the stock price over the last ten years, there is an equal chance of a rise or a fall in ATVI stock in the near term, implying that the stock is best avoided for the short-term. See our analysis on Activision Blizzard Stock Return for more details.

1D: ATVI -6.1%, vs. S&P500 0.4%; Underperformed market

(Extremely rare event)

• Activision Blizzard stock dropped 6.1% on 11/16/2021, compared to the broader market (S&P500) rise of 0.4%
• A change of -6.1% or more over 1 trading day is an extremely rare event, which has occurred 16 times out of 2516 in the last 10 years

10D: ATVI -15%, vs. S&P500 1.6%; Underperformed market

(Extremely rare event)

• Activision Blizzard stock declined 15% over the last ten trading days (two weeks), compared to a broader market (S&P500) rise of 1.6%
• A change of -15% or more over ten trading days is an extremely rare event, which has occurred 18 times out of 2515 in the last 10 years

21D: ATVI -13%, vs. S&P500 4.9%; Underperformed market

(4% likelihood event; 49% probability of rise over next 21 days)

• Activision Blizzard stock declined 13% the last twenty-one trading days (one month), compared to a broader market (S&P500) rise of 4.9%
• A change of -13% or more over twenty-one trading days is a 4% likelihood event, which has occurred 95 times out of 2515 in the last 10 years
• Of these 95 instances, the stock has seen a positive movement over the next twenty-one trading days on 47 occasions
  This points to only a 49% probability for the stock rising over the next twenty-one trading days

[Updated: Nov 12, 2021] ATVI Stock Update

The stock price of Activision Blizzard (NASDAQ: ATVI) has seen a fall of 10% in a month, while it’s down 14% over the last ten days. The recent fall can be attributed to the company announcing a delay in the launch of two much awaited games – Overwatch 2 and Diablo IV, along with a miss on Q4 outlook, as we have discussed in an update below.

But now that ATVI stock has seen a fall of 10% over the last month or so, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a higher chance of a rise in ATVI stock over the next month. Out of 173 instances in the last ten years that ATVI stock saw a twenty-one day drop of 10% or more, 96 of them resulted in ATVI stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 96 out of 173, or about a 55% chance of a rise in ATVI stock over the coming month. See our analysis on Activision Blizzard Stock Chance of Rise for more details.

So, if this follows historical performance, it is likely that ATVI stock will rise to higher levels going forward. Also, Activision Blizzard Stock Return summarizes ATVI stock performance and chances of its rise or decline, among other metrics that matter.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years data

• After moving -1.1% or more over a five-day period, the stock rose in the next five days on 57% of the occasions.
• After moving -14% or more over a ten-day period, the stock rose in the next ten days on 30% of the occasions
• After moving -10% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 55% of the occasions.

Activision Blizzard (ATVI) Stock Return (Recent) Comparison With Peers

• Five-Day Return: ZNGA highest at 7.4%; TTWO lowest at -3.7%
• Ten-Day Return: EA highest at 3.0%; PLTK lowest at -21.3%
• Twenty-One Day Return: MSFT highest at 12.2%; PLTK lowest at -16.9%

While ATVI stock may see a rebound, it is helpful to see how its peers stack up. Check out Activision Blizzard Stock Comparison With Peers to see how ATVI stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

[Updated: Nov 4, 2021] ATVI Q3 Earnings Update

The stock price of Activision Blizzard (NASDAQ: ATVI) plunged over 14% in yesterday’s trading session (Nov 3). The company recently reported its Q3 results with revenue rising 6% y-o-y to $1.9 billion and earnings of $0.72 on a per share adjusted basis, up 11% y-o-y. Both – revenue and earnings – were in-line with our estimates. But the company announcing a delay in the much awaited Overwatch 2 and Diablo IV game launches, clubbed with a miss on Q4 outlook didn’t sit well with investors. The company now expects Q4 revenues to be $2.78 billion and EPS of $1.29, compared to the consensus estimates of $2.95 billion and $1.39, respectively.

We have also updated our model following the Q3 release. We have revised the full-year 2021 sales forecast to be around $8.6 billion, in-line with the company’s guidance. We also lowered our earnings forecast to $3.72, compared to our earlier estimate of $3.85. The company now expects its full-year 2021 EPS to be $3.70. Given these changes to our revenues and earnings forecast, we have revised our Activision Blizzard’s Valuation to $94 per share, based on $3.72 expected adjusted EPS and a revised 25x P/E multiple for 2021. This marks a 15% cut to our price estimate for ATVI, and the nearly -400 bps change in P/E multiple. This can primarily be attributed to the delay in launch of two much awaited games, implying that the company is likely to see slower earnings growth over the next several quarters, compared to earlier estimates.

Despite the recent downward revision in our price estimate for ATVI stock, there is still a large room for growth, in our view. ATVI stock has been weighed down over the recent months after the company was sued for a hostile work environment, and now for a weak Q4 outlook followed by the delay in launch of Overwatch 2 and Diablo IV. At the current price of $67, ATVI stock is trading at just 18x its 2021 EPS forecast of $3.72, much lower than its peers. For instance, TTWO stock currently trades at around 40x its forward earnings, while Electronic Arts trade at 21x. Even the average multiple for ATVI stock over the last few years stands north of 23x, implying that the stock is currently undervalued.

While ATVI stock looks undervalued, it is helpful to see how its peers stack up. Check out Activision Blizzard Stock Comparison With Peers to see how ATVI stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

[Updated: Oct 27, 2021] ATVI Q3 Earnings Preview

Activision Blizzard (NASDAQ: ATVI) is scheduled to report its Q3 2021 results on Tuesday, November 2. We expect the company to likely post revenue and earnings above the consensus estimates, primarily led by continued growth in the Call of Duty as well as World of Warcraft franchises. That said, the company saw a y-o-y decline in monthly active users (MAUs) in Q2, given a tough comparison to the prior year, which benefited from the lockdowns. This trend may continue in the near term, as economies open up gradually, but overall MAUs are expected to remain well above the pre-pandemic levels.

Not only do we expect the company to post upbeat results, our forecast indicates that Activision Blizzard’s valuation is $110 per share, which reflects a large 36% premium to the current market price of around $81, implying that the stock is undervalued at its current levels. Our interactive dashboard analysis on Activision Blizzard Pre-Earnings has additional details.

(1) Revenues expected to be slightly above the consensus estimates

Trefis estimates Activision Blizzard’s Q3 2021 revenues to be around $1.92 billion, slightly above the $1.88 billion consensus estimate. Despite the economies opening up with vaccination programs underway in multiple countries, the user engagement levels for gaming has remained on the higher side, aiding Activision Blizzard’s sales over the recent quarters. The company reported revenues of $2.3 billion in Q2 2021, up 19% y-o-y, and it has guided for $1.85 billion revenues in Q3. Our dashboard on Activision Blizzard Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

Activision Blizzard’s Q3 2021 adjusted earnings per share (EPS) is expected to be $0.72 per Trefis analysis, slightly above the consensus estimate of $0.70. The company’s adjusted net income of $941 million in Q2 2021 reflected a solid 49% rise from its $631 million figure in the prior-year quarter, led by higher revenues and margin expansion. For the full year 2021, we expect the adjusted EPS to be higher at $3.85 compared to $3.21 in 2020. The company has reduced its sales and marketing costs over the recent past, and we expect this trend to continue in the near term.

(3) Stock price estimate much higher than the current market price

Going by our Activision Blizzard’s Valuation, with an EPS estimate of $3.85 and a P/E multiple of 29x in 2021, this translates into a price of $110, which is roughly 36% above the current market price of around $81. In fact, at the current market price of $81, ATVI stock is trading at just 21x its 2021 EPS estimate of $3.85. The 21x figure compares with levels of over 26x seen in 2019 and a 29x figure seen as recently as late 2020, implying that ATVI stock is currently undervalued.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.

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1. Activision CEO Bobby Kotick Knew for Years About Sexual-Misconduct Allegations at Videogame Giant, Kirsten Grind, Ben Fritz and Sarah E. Needleman, The Wall Street Journal, Nov 16, 2021 [↩]