Activision Blizzard (ATVI) has been largely unaffected by the coronavirus pandemic. While the company initially experienced a downturn as a result of the outbreak, it is now surging. In fact, Activision Blizzard stock price is now higher than it was prior to the pandemic. The stock price just recently surged to a year-long high of $67.
Activision Blizzard has experienced a sharp stock recovery in recent weeks.
Activision Blizzard is one of the largest gaming companies in the world, reporting GAAP revenues and net bookings of $1.99 billion and $2.71 billion respectively in Q4 alone. Given the recent positive news about the company’s Call of Duty: Warzone release, it would not be surprising to see the company beat quarterly expectations again.
Social Distancing Having Little Impact on Activision Blizzard
The videogame industry may be one of the few industries that could feel little to no impact from social distancing. Individuals may find themselves playing more video games as a result of social distancing measures. In fact, Activision Blizzard CEO Bobby Kotick recently stated that the company’s games are seeing record levels of engagement.
Activision Blizzard’s recently launched Call of Duty: Warzone drew 30 million players within 10 days of its March 10 release. This figure makes the game the fastest-growing title of all time (non-mobile), which is incredibly impressive given how many large titles have been released in recent years. Video games will likely become an increasingly attractive means to compete and socialize in the current period of social distancing.
Gaming will likely become even more popular in the current period of social distancing.
Source: GameSpot
Challenges Ahead
Despite Activision Blizzard’s recent success, the company is facing many challenges. It no longer appears to be at the forefront of major industry trends. Historically, Activision Blizzard has even been able to popularize entire genres with highly creative and addictive games like StarCraft and Diablo. Now, the company appears to be playing catch-up on many fronts.
Activision Blizzard is even losing out on the MOBA trend, despite the fact that the concept originated from the company’s older games. Today, League of Legends dominates the MOBA genre and is one of the largest games. Activision Blizzard’s inability to truly capitalize on an incredibly popular genre that spawned from its own games is hugely consequential. Moreover, the company is even losing dominance in genres it historically had a strong grip on, like action RPGs. Path of Exile, for instance, is now commanding the attention of the most dedicated action RPG players.
The rise of Path of Exile could deal a huge blow to Activision Blizzard’s Diablo franchise, which traditionally dominated the action RPG space. Given all the hype surrounding the upcoming Path of Exile 2 release, Activision Blizzard is likely to cede further ground in this genre. However, a successful Diablo 4 launch could help Activision Blizzard regain its dominance in the action RPG genre.
While the Activision Blizzard brand is undoubtedly losing some of its luster, the gaming industry as a whole is thriving. This means the company still has huge growth opportunities ahead. Despite stagnation in recent years, Activision Blizzard still commands a huge audience and vast amounts of resources. The company’s Activision, Blizzard, and King divisions still boast monthly active users of approximately 120 million, 32 million, and 249 million, respectively. This huge and dedicated customer base will allow Activision Blizzard a large margin for error moving forward.
Activision Blizzard’s StarCraft spawned the original MOBA with the Aeon of Strife mod. Despite StarCraft being the originator of MOBA, other companies have come to dominate MOBA. Activision Blizzard’s inability to capitalize on a genre spawned from one of its own games should be worrying for investors.
Source: StarCraft
Strong Financials
Despite the challenges facing Activision Blizzard, the company still boasts many advantages moving forward. It has a strong balance sheet compared to many of its competitors. Activision Blizzard delivered an operating cash flow of $918 million in Q4 and $1.8 billion on an annual basis. This translated to a net cash position of ~$3.2 billion by the end of the year.
Activision Blizzard has several well-performing franchises that reliably generate revenue for the company. The strong balance sheet has also enabled the company to increase its annual dividend two $.41 per share. With such a strong financial position, Activision Blizzard has the resources to stay at the forefront of the gaming industry despite some missteps.
Conclusion
While Activision Blizzard’s titles no longer dominate like they used to, the company’s franchises still bring in large amounts of revenue. Moreover, the company’s top franchises like Call of Duty and World of Warcraft are stable and will likely generate revenue for years to come. Some of the most popular games today, like Fortnite, have not proven their staying power like some of Activision Blizzard’s main franchises.
It may still take some time to see if the company can truly compete in this new era of gaming. While Activision Blizzard’s historical influence is undeniable, the company is facing more competition than ever from other gaming giants like Tencent (OTCPK:TCEHY), Electronic Arts (EA) and Take-Two Interactive Software (TTWO).
Investors may still want to stay on the sidelines at Activision Blizzard’s current market capitalization of $50 billion and forward P/E ratio of 27. While Activision Blizzard certainly has the experience and balance sheet to remain a large player in the industry, it is questionable if the company will be able to regain the dominance of years past.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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