Will Activision Blizzard Stock See Higher Levels Following Its Q4?

[Updated: Feb 2, 2022] Activision Blizzard Q4 Earnings Preview

Activision Blizzard (NASDAQ: ATVI) is scheduled to report its fiscal Q4 results on Thursday, Feb 3. We expect ATVI stock to trade sideways with its revenue and earnings falling in line with the consensus estimates. The company should benefit from its latest Call of Duty game, along with a continued uptick in the Candy Crush franchise. Warzone Pacific update was also launched in December, likely bolstering the sales for the Blizzard segment. The company may see strong user engagement levels, given the spread of Omicron, implying that people spent more time at home, eschewing more public forms of entertainment. However, this trend may reverse in Q1, given that Omicron appears to be milder than earlier variants of Covid-19. Although we don’t expect any earnings surprise from Activision Blizzard, our forecast indicates that there is some more room for growth in ATVI stock, as we discuss in the sections below. Our interactive dashboard analysis on Activision Blizzard Earnings Preview has additional details.

(1) Revenues expected to be in line with the consensus estimates

• Trefis estimates Activision Blizzard’s Q4 revenues to be around $2.8 billion, in-line with the consensus estimate.
• The company should benefit from its Call of Duty: Vanguard game released in November.
• Looking back at Q3, the company reported revenue of $2.1 billion, reflecting a 5.9% y-o-y growth, as 22% growth in King and a 20% growth in Blizzard segment revenues more than offset a 17% decline in Activision segment revenues.
• The decline in Activision segment last quarter can be attributed to two factors. First, a tough comparison with the prior year quarter, which benefited from shelter-in-place restrictions, and second, the launch of Tony Hawk’s Pro Skater, released in the prior year quarter.
• Our dashboard on Activision Blizzard Revenues offers more details on the company’s segments.

(2) EPS also likely to be largely in-line with the consensus estimates

• Activision Blizzard’s Q4 adjusted earnings per share (EPS) is expected to be $1.32 per Trefis analysis, just a cent above the consensus estimate of $1.31.
• The company’s adjusted net income of $893 million in Q3 reflected a 4% growth compared to $856 million figure seen in the prior year quarter.
• Activision Blizzard saw a 100 bps decline in operating margin (for its three segments) in Q3, while it was down 140 bps for the nine month period ending Sep 2021.
• Looking forward, we expect the adjusted EPS to be higher at $3.97 in 2022, compared to an estimated $3.79 in 2021.

(3) ATVI stock has some more room for growth

• We estimate Activision Blizzard’s Valuation to be $92 per share, which is 16% above its current market price of $79.
• This represents a P/EBITDA multiple of 17.5x for the company based on Activision Blizzard EBITDA for the last twelve months.
• Now, if the company reports upbeat results, with sales growth as well as 2022 guidance better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in even higher levels for ATVI stock.
• Note that Microsoft plans to acquire Activision Blizzard for $69 billion, and the deal is subject to be reviewed by the U.S. Federal Trade Commission.

Below you’ll find our previous coverage of ATVI stock where you can track our view over time.

[Updated: Jan 18, 2022] Microsoft To Acquire Activision Blizzard

The stock price of Activision Blizzard (NASDAQ: ATVI) is trading a whopping 37% higher before market hours after the reports of Microsoft’s plan to acquire Activision Blizzard have emerged. ^[1] Microsoft’s press release confirmed its plans to acquire the gaming giant behind the very popular Call of Duty and Candy Crush franchises for $69 billion in an all-cash deal. Now, Activision Blizzard’s stock closed at $65 levels, and Microsoft’s offer of $95 per share reflects a premium of 46%.

ATVI stock is down more than 25% over the last six months, primarily due to its sexual misconduct lawsuit and a delay in the launch of some highly anticipated games, including Overwatch 2. That said, the decline in ATVI stock over the recent months was overdone and we have long maintained our view that ATVI is undervalued. The company’s franchises, primarily Call of Duty, continues to see strong sales every year while the Candy Crush franchise has also seen a rebound with rising active users over the recent past.

We estimate Activision Blizzard’s Valuation to be around $92 per share which is 42% above the current market price of $65. This represents a P/EBITDA multiple of 20.4 for the company based on our forecast for Activision Blizzard EBITDA for the current fiscal year.

Our coverage on Activision Blizzard, which includes Activision Blizzard Revenue Comparison, Activision Blizzard Operating Income Comparison, and Activision Blizzard Valuation Ratios Comparison, among others, provides more details on the company’s financial performance.

While ATVI stock will likely see higher levels today, 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 useful comparisons on Peer Comparisons.

[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. ^[2] 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 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. 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 the 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

(An 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

(An 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 rising 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 the 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 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 the 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] Month-to-date and year-to-date as of 2/2/2022
[2] Cumulative total returns since the end of 2016

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1. Microsoft Nears Deal to Buy Activision Blizzard for More Than $50 Billion, Cara Lombardo, Kirsten Grind and Aaron Tilley, The Wall Street Journal, Jan 18, 2022 [↩]
2. 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 [↩]