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Is the Current Dip the Perfect Opportunity to Buy Activision Blizzard (ATVI)?

Zachary Stutler

Activision Blizzard ATVI stock rose over 2.7% Tuesday after Goldman Sachs GS upgraded it from “neutral” to a “buy” and added the company to its “Conviction Buy” list. This comes at a time when Activision Blizzard seemed to be struggling to produce any growth at all since its last earnings report earlier this month. ATVI has also underperformed compared to its main competitor Electronic Arts EA.

Quick Overview

Activision Blizzard is one of the main developers of video games and is split into three main segments: Activision Publishing, Blizzard Entertainment Inc., and King Digital Entertainment. Although all segments report under the Activision Blizzard name, each segment works nearly independently to develop and produce their own game titles. Year-to-date, Activision Blizzard has slipped nearly 7.5% as revenue has fallen over the past year.

Revenue, EPS, and Income were expected to fall over the last quarter, and the stock has failed to show any signs of growth up to now, even after beating expectations for its earnings report early this month.

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Company Growth and Restructuring

In February 2019, Activision Blizzard announced a significant restructuring plan, which includes a planned cut of roughly 8% of its workforce, to help give additional resources to their most successful game franchises. Company executives expect therestructuring plan will cost roughly $150 million over the course of fiscal 2019, but it seems necessary to grow the company’s future revenue.

Activision Blizzard looked to add a revenue stream in 2017 with the founding of its Overwatch League. A worldwide competitive league for one of its more popular titles, Overwatch. The league began its second season earlier this year with each game live streamed for fans to watch on Amazon’s AMZN Twitch streaming platform, the ESPN app DIS, and certain games on ABC and ESPN2. The start of the season brought over 13 million viewers, which is important given most of the revenue from the league comes from ads and sponsors.

The league already has big-name sponsors such as Toyota TM, Coca-Cola KO, and State Farm, which provide support to the league to keep it running smoothly. Given the success of the league, Activision Blizzard plans to launch a Call of Duty league which has even more potential given Call of Duty is the company’s most popular title. Additionally, the e-sports market continues to grow and is expected to exceed $1 billionand advertiser/sponsor spending in the e-sports market should continue to grow, which should help the success of both leagues for Activision Blizzard.

Since October, the stock has fallen over 40% due to a top and bottom line downturn and the failure of certain products. Because of these failures, Activision Blizzard decided to emphasize the resources used for its more successful franchises rather than focusing on creating new game franchises. Since the slowdown reported in May was not as bad as expected, there is optimism surrounding the outlook of the company as it seems to have gone back to doing what it was most successful with as well as expanding on its new found e-sports success.

Bottom Line

Activision Blizzard’s restructuring shows management’s recognition of the declining revenue. Efforts to revamp the company for the future and its additional ventures into e-sports seem like a lucrative business for the company and investors. Given the new initiatives by the company and the upgrade from Goldman Sachs, Activision Blizzard could make a good addition to a portfolio.

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