Activision Blizzard (ATVI, Financial) is one of the best gaming stocks available today. The stock gained a strong positive momentum in 2013 and is still showing positive signs of growth. Moreover, the company recently reported healthy third quarter results.
In the third quarter, Activision shared earnings per share of 49 cents, seven cents better than the analyst estimates, whereas revenue came in at $1.57 billion, in line with the analyst estimates. That figure also represents a whopping surge of 51%.
However, lenient demand for the company’s latest installment of “Call of Duty: Infinite Warfare” as well as the disappointing full-year top-line targets have recently pushed the stock downward.
"Call of Duty" accounts for one of the most significant parts of the company, as this franchise generates a huge portion of the company’s overall revenue. Therefore, it is obvious that underperformance of "Call of Duty’s" latest installment stands as a remarkable disappointment. However, the company has a lot of vigorous properties to drive growth even if one of its significant game series is displaying signs of decline.
Despite the fact the prior two quarters displayed unbelievable growth for Activision, its fourth quarter projections that comprise the holiday season were frailer than numerous consensuses had anticipated. However, investors should not worry because the company’s future prospects still look bright.
Moving onward, the company is aggressively focusing on digital downloads that will certainly enhance its margins. To generate higher sales, the company has introduced in-game purchases like additional gaming packs with new and exclusive characters, gameplay, DLCs or settings available for an upgrade after purchasing the original version of the game.
Subscription revenue surged over 100% compared to a year ago and now accounts for over 75% of overall sales. Throughout the quarter, the company’s operating margin surged 11.2%.
Apart from this, according to IDC, the overall revenue from the mobile gaming market is poised to grow over 10% per year through 2020, which will turn it into the biggest segment of the worldwide video game industry by a huge margin. This clearly suggests Activision is in a great position to benefit from the rise of mobile gaming, especially since it recently acquired King Digital.
Summing up
After gaining more than 90% in 2015, the company was off to a great start this year. However, the stock is down approximately 5% year to date, presenting a great buying opportunity for investors. Considering these factors, the future looks bright for the company and it has top-line growth potential in the imminent years. All in all, Activision Blizzard is a buy.
Disclosure: No position in the stocks mentioned in this article.
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