What’s Driving Activision Blizzard Stock Higher?
After seeing a 1% decline over the last six months, at the current price of around $81 per share, we believe Activision Blizzard stock (NASDAQ: ATVI) has more to go. ATVI stock fell over 30% from $82 in early September 2021 to $56 in early December, following the sexual misconduct lawsuit against the company. However, it jumped back to the level of over $80 after Microsoft announced its plans to acquire Activision Blizzard. The -1% move for ATVI in the last six months compares with -3% returns for the broader S&P500 index. Looking at the longer term, ATVI Stock is up a solid 75% from levels seen in early 2019. Our dashboard – Why Activision Blizzard (ATVI) Stock Moved – provides more details on the factors behind this move over the last three years.
Now, much of this growth over the last three years was driven by the company’s P/S ratio, which rose from 4.8x in 2018 to 7.3x currently. Activision Blizzard’s revenue increased 17% over the same period. The pandemic resulted in higher revenues in 2020 and 2021, as people eschewed more public forms of entertainment, and the user engagement levels for gaming companies, at large, trended higher. The company’s revenue of $8.8 billion in 2021 compares with $7.5 billion in 2018. The total share outstanding rose to 783 million currently, compared to 760 million in 2018. This meant that revenue per share rose only 14% to $11.24 in the last twelve months, vs. $9.86 in 2018.
Given the rebound in economic activities and gradual lifting of shelter-in-place restrictions over the recent quarters, gaming user engagement levels have declined. Activision’s monthly active users (MAUs) fell to 107 million in December 2021, compared to 128 million in December 2020. Similarly, Blizzard segment MAUs also reduced to 24 million vs. 29 million over the same period. King is the only segment that saw its MAUs at a similar level of 240 million during this period. There are much anticipated games, including Overwatch 2 and Diablo IV, in the pipeline, which can drive the user base higher going forward.
Looking at Microsoft’s acquisition of Activision Blizzard, the deal is subject to be reviewed by the U.S. Federal Trade Commission. More recently, the shareholders of Activision Blizzard sued the company over its sale to Microsoft. [1]
We estimate Activision Blizzard’s Valuation to be $99 per share, 22% above its current market price of $81. This represents a P/EBITDA multiple of 17.9x for the company based on Activision Blizzard’s EBITDA of $4.3 billion for the last twelve months. That said, there are near-term headwinds. Given the geopolitical tensions between Russia and Ukraine, it is likely that the broader markets may remain volatile in the near term, impacting ATVI stock as well.
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Here you’ll find our previous coverage of ATVI stock, where you can track our view over time.
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| Returns | Mar 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| ATVI Return | 0% | 23% | 126% |
| S&P 500 Return | 0% | -8% | 95% |
| Trefis MS Portfolio Return | 0% | -10% | 254% |
[1] Month-to-date and year-to-date as of 3/1/2022
[2] Cumulative total returns since the end of 2016
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Notes:- Activision Blizzard Is Being Sued by Shareholders Over Microsoft Sale. Here’s Why it Matters, Colette Bennett, The Street, Feb 25, 2022 [↩]