Activision Blizzard Inc. (ATVI, Financial) was down nearly 5% in 2016, but the stock has been performing amazingly well this year. Currently, the stock is up almost 65% year to date.
Gaming is increasingly becoming a bigger part of our lives. According to a forecast report from newzoo.com, the worldwide gaming market is projected to grow at a compound annual growth rate (CAGR) of 6.2% through 2020 to reach $128.5 billion. Considering the healthy outlook for the market, Activision looks well positioned to benefit in the years ahead.
The company reported robust first-quarter results in May, and it was another stunning quarter. The most significant aspect is the continued growth of "Overwatch," which the game publisher launched in May 2016. "Overwatch" now has 30 million registered players and has turned itself into Activision’s eighth $1 billion franchise.
The game's success exemplifies the company’s ability to create new franchises that can attract a substantial following. Moving ahead, it appears the "Overwatch" franchise's momentum will pick up as the game publisher plans to launch "Overwatch League" later this year.
Moreover, the company has several other franchises that generate a high level of engagement across its user base, such as "World of Warcraft" and "Call of Duty." The game publisher is set to launch the 12th installment of the latter franchise, titled “Call of Duty: WWII,” on Nov. 3.
To keep up with its yearly strategy, the game publisher rotates through three different studios, Sledgehammer Games, Treyarch and Infinity Ward, for its "Call of Duty" installments. The latest installment will be developed by Sledgehammer Games.
The publisher also detailed the new game will take the franchise back to its roots. Its decision to pivot back to the series’ origin will certainly help it to compete effectively against Electronic Arts’ (EA, Financial) "Battlefield 1," which used a similar strategy and performed better than expected.
Apart from this, Activision’s “Destiny 2” is scheduled to launch on Sept. 8. The game will also be released for PC, but the second chapter will be exclusively available via Battle.net, a digital platform, on Windows PC.
"Destiny 2" will have a lot of new content as well as an improved campaign story. Consequently, it appears the game will possibly perform better than its prequel and will positively impact the company's profit margins.
Summing up
Activision has displayed strong signs of growth this year and will hopefully continue moving upward in the coming quarters as well. The company is on its way to release two new games in the second half of this year, which could boost growth on the top and bottom lines
The company offers a dividend yield of 2%. While not terribly impressive, shareholders should notice that Activision’s top competitors, Electornic Arts and Take-Two Interactive Software (TTWO, Financial), do not even pay dividends.
With its share price, the company's price-earnings (P/E) ratio has also increased. The stock currently trades at a P/E ratio of 45, suggesting it is currently overvalued. While existing shareholders should continue to hold the stock, investors interested in buying should wait for a dip.
Disclosure: No position in the stocks mentioned in this article.
