Activision Blizzard (ATVI, Financial) performed very well in 2015, but the stock is down nearly 6% this year. The stock was moving upward until the company reported earnings in November. Despite surpassing analyst estimates in terms of bottom line and delivering a top line growth of 51%, the stock has collapsed over 10% following the third quarter results.
The primary reason behind the company’s short-term decline is the soft guidance and reports of lower sales for “Call of Duty: Infinite Warfare”. However, this does not means that the company will continue to move downward in the forthcoming years. Despite the disappointing “Call of Duty: Infinite Warfare” sales, the company has reported another robust quarter results.
Activision was somewhat aware of the fact that the latest installment of the “Call of Duty” series may underperform compared to its previous version, as the company launched the game only for the latest generation consoles, including PlayStation 4 and Xbox One.
According to a report from Statista.com, the installed base of Xbox 360 and PlayStation 3 totalled more than 145 million units in 2015, whereas PlayStation 4 and Xbox One, combined, totalled less than 60 million units. This data clearly justifies why the latest installment of “Call of Duty” underperformed this year.
Taking a deep look at Activision’s third quarter results confirms that the company is becoming robust with each passing quarter. The company's latest franchise, Overwatch, formerly boosted more than 20 million players in just four months since the day of launch, and turned itself in to the fastest game ever to engage a huge amount of players in such a less time.
Moreover, mobile gross bookings as well as revenue per paying user from one of its most significant acquisition, King Digital, are growing at a healthy rate. Moving ahead, the company also projects unrelenting momentum from its other growth edges, comprising integration of e-sports as well as in-game advertising.
The company also endures to gain advantage from the shift towards digital sales. Most significantly, virtual reality is currently at its early stage and the company has a lot of potential to gain a strong lead in the forthcoming years.
Conclusion
Activision Blizzard is currently down approximately 19% from its 52-week high, which represents a buying opportunity for investors. Moreover, the company’s efforts to shift towards digital sales will certainly enhance its margins in the years ahead.
As an outcome, Activision Blizzard is a buy at present levels considering the long-term positive outlook of the company.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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