This was certainly a summer to remember for Activision Blizzard, Inc. (NASDAQ:ATVI), which turned in a strong earnings report that appeared to reaffirm both its continued dominance in the video gaming market and the wisdom of its $5.9-billion acquisition of King Digital Entertainment. And while ATVI stock has a surplus of fans, some doubt continues to linger around the edges of this seemingly unstoppable company. But are these doubts justifiable?
Activision Blizzard Stock’s Right Moves
Earlier this month, the Santa Monica, California-based company produced a better-than-expected earnings report, with a profit of $0.17 a share on sales of $1.57 billion. Following adjustments, Activision Blizzard stock reported a profit of $0.45 a share. In comparison, analysts on average were predicting an adjusted profit of $0.42 on sales of $1.45 billion. Activision Blizzard stock also forecast a full-year profit of $0.87 a share on sales of $6.4 billion. (Source: “Activision Blizzard earnings beat expectations, stock gains,” MarketWatch, August 4, 2016.)
While the company continues to hold onto a strong gaming audience with its Call of Duty franchise and the Overwatch title that was successfully launched in May, the real sugar rush in ATVI stock earnings could be traced to acquiring King Digital’s wildly popular Candy Crush series of video games. For Activision Blizzard, Inc., the London-based King Digital was more than ripe for the taking; the $5.9-billion purchase price was $18 a share, which is a good distance below King Digital’s $22.50 a share from its 2014 initial public offering (IPO).
Furthermore, the ATVI stock earnings report seems to have dismissed concerns that King Digital was the video gaming industry equivalent of a one-trick pony. The company had no other games that came close to complementing the popularity of its Candy Crush series, a fact that did not worry Activision Blizzard in the least. (Source: “Activision Blizzard Closes Its $5.9B Acquisition Of King, Makers Of Candy Crush,” TechCrunch, February 23, 2016.)
Mixed Opinions on ATVI Stock
Activision stock is not lacking in strong believers. During the last quarter, 10 investment firms collectively scooped up 30 million shares of ATVI, most notably Lone Pine Capital, with its 10-million share buy. (Source: “Billionaires Pile into Activision Blizzard, Inc. But is it a Buy?”, Motley Fool, August 24, 2016.)
During the fourth quarter, Handelsbanken Fonder AB acquired a new stake in Activision Blizzard stock worth approximately $48.6 million, while Mark Asset Management Corp increased its stake in Activision Blizzard stock by 48.5%, now at 268,521 shares with a $10.39-million value. Also in the fourth quarter, PineBridge Investments LP raised its stake in Activision Blizzard stock by 95.5%, with a total accumulation of 160,276 shares valued at $6.2 million, while Clinton Group raised its stake by 133% to achieve holdings of 39,017 shares valued at $1.5 million. (Source: “Activision Blizzard Inc. (ATVI) Stock Rating Reaffirmed by Jefferies Group,” Community Financial News, August 22, 2016.)
Furthermore, 14 Wall Street Journal analysts recently gave ATVI stock a “buy” rating, and none recommended a “sell.” However, four analysts rated the company as a “hold” and three rated it as “overweight.” (Source: “Analyst’s Noticeable Buzzers: Activision Blizzard, Inc (NASDAQ:ATVI) , Sabre Corporation (NASDAQ:SABR),” Street Updates, August 26, 2016.)
But the seven analysts calling for “hold” or “overweight” ratings were not the only ones to have concerns about ATVI stock. In the second quarter, a half-dozen money management firms sold off a total of 2.8 million shares, most notably Paulson & Co getting rid of two million shares, or two-thirds of its Activision Blizzard stock holdings. (Source: Motley Fool, op. cit.)
And in what could not be seen as a ringing endorsement by the Activision Blizzard C-suite, CEO Michael Morhaime sold 1.15 million shares of Activision Blizzard stock in June for a total value of $43.8 million, while COO Thomas Tippl sold 44,427 shares on August 15; a total value of $1.85 million. (Source: Community Financial News, op cit.)
The Takeaway Regarding ATVI Stock
For a company that turned in a vibrant earnings report and continues to hold the loyalty of millions of gamers around the world—with millions more coming into the fold via King Digital’s Candy Crush—it would seem illogical that anyone would be bearish on Activision Blizzard stock. But that train of thought is not necessarily on the wrong track.
For starters, the video game world is notorious for the ephemeral state of title popularity, with last year’s wild hit often becoming this year’s second-tier offering and next year’s quaint memory (Can you say, Angry Birds?). While the King Digital acquisition paid off handsomely for the most recent quarter, what is going to happen when people eventually tire of Candy Crush?
There is also the uncertainty of the upcoming Christmas season and the concern of whether older games like the Call of Duty series will continue to generate favor among holiday shoppers. After all, the appeal of holiday gifts involves bright and shiny new offerings rather than the umpteenth version of a game that feels like it has always been around.
The Bottom Line on ATVI Stock
Still, anyone who sneers at Activision Blizzard stock is doing so at their own peril. Activision Blizzard, Inc. is showing no signs of fraying, and its ability to command sterling earnings performances at a time when many of its competitors are still making excuses for their losses cannot be overlooked. Investors that like a sure bet cannot find a surer bet at the moment. But the wait-and-see crowd is not unjustified in expecting to see Activision Blizzard’s next steps—although, at this point in time, the steps appear to be heading in an ascending direction.