The target for Activision Blizzard securities on the horizon of the year has to be $95
The quarterly results of game developer Activision Blizzard (ATVI) coincided with market expectations. Still, management forecasts for the next quarter did not satisfy investors, and the release of Overwatch 2 and Diablo IV games no earlier than 2023. The company’s sales increased by 5.9%, to $2.07 billion, and adjusted revenue (Net Bookings indicator) increased by 6.4%, to $1.88 billion, coinciding with the consensus forecast.
Adjusted EPS at the same time exceeded the consensus by $0.02, amounting to $0.72. Activision’s key segment, whose main product is the Call of Duty series of games, showed relatively weak results: Net Bookings amounted to $641 million (consensus: $700 million), and operating profit — $244 million (agreement: $282 million). Management, however, notes the continued high level of player engagement: revenue from sales of the Call of Duty Mobile game increased by 40%.
The most attention of investors by the results of the Blizzard segment represented by-products such as World of Warcraft and Overwatch. Its quarterly revenue was $493 million, again slightly short of the consensus forecast ($524 million). However, the central negative aspect of the report was the news about the postponement of the release of Overwatch 2 to a later date (no earlier than 2023).
At the same time, the exact release date of the game. Another product, Diablo IV, which could appear in 2023, will also be released later. According to management, spending more time on a more detailed study of the much-anticipated games is advisable. In July of this year, Blizzard had a scandalous story related to harassment and other employee complaints about corporate culture.
As a result, Jen Onil and Mike Ibarra Blizzard were co-directors. Unfortunately, one was leaving the company at the conference call, which was also an unpleasant surprise. Nevertheless, the King segment, represented by mobile games, showed positive results: its revenue was $652 million with a consensus of $619 million.
Advertising revenue has reached a new high, showing growth both quarterly and year-on-year. As a positive factor, it can be that Apple’s new privacy policy has not impacted this segment of ATVI. The average monthly audience of Activision Blizzard game companies for July-September decreased to 390 million; at the end of the last quarter, it was 408 million people.
Management expects Net Bookings to reach $2.78 billion in the next quarter and EPS to $1.29. The general market consensus assumed $2.91 billion and $1.38, respectively. Thus, management’s forecasts for the fourth quarter did not satisfy investors. Management’s estimates for the full year 2021 have not changed, although investors expected it to increase. The company forecasts adjusted EPS of $3.76, which is below the consensus of $3.83.
The company’s Net Bookings target at $8.65 billion against the consensus forecast of $8.79 billion. As a result, we are adjusting the target price Activision blizzard stock quote paper on the horizon of the year from $115 to $90 background of a shift schedule of game releases. At the same time, we continue to evaluate the company positively in the long term and believe that the prospects for business growth still look confident.
The forward P/E multiplier has been at lows since 2019 (in the area of 17-18x) and essentially already considers negative medium-term factors. Against the background of low multipliers values, the continuation of the correction in ATVI shares looks unlikely. However, in the short term, it may have sideways dynamics.
