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Harsh Jain
Harsh Jain
Articles (219) 

Is Activision Blizzard's Spectacular Rally Over?

The video game producer is one of the S&P 500's best performers

November 14, 2017 | About:

Activision Blizzard Inc. (NASDAQ:ATVI) has been a great performer this year as it has gained more than 75% year to date. Among the video game publishers, Activision Blizzard has been one of the best-performing stocks over the past several years. The video game publisher’s winning streak is intact and so is its future growth.

The company reported strong third-quarter results after the market closed Nov. 2. It posted earnings per share of 25 cents, exceeding analysts' estimates by 17 cents.The company generated record third-quarter revenues of $1.90 billion, again exceeding the consensus by $160 million.

Most importantly, revenue grew 16.6% year over year. The company’s operating cash declined 17% year over year, and its free cash flow (FCF) on a GAAP basis plunged 19%.

Activision currently has more than 380 million monthly active users (MAUs). The Blizzard platform alone has 42 million average users per month, a record for the business. The video game publisher generated nearly $1 billion in revenue from in-game purchases. The company reported it set a new milestone for daily time spent per user at approximately 50 minutes, which is very impressive.

While the company's average revenue per user (ARPU) grew to 55%, its monthly active users declined 26%. This is not a good sign as a growing user base is necessary for sustainable ARPU growth. It has become vital for the company to launch new mobile games to attract users back.

Moreover, the company launched "Call of Duty: WWII," the 14th installment in the "Call of Duty" series, on Nov. 3. It surpassed more than $500 million in global sales in its first three days. The company launched the game at a good time as we are heading into the holiday season. 

Apart from "Call of Duty," another popular franchise is "Overwatch," which currently has 25 diverse characters. The company has massive plans for consumer products as well as movies, and Overwatch has innovative content that could bear fruit going forward. The company is also in the middle of making its first "Call of Duty" movie, but it is still years away from being released.

Summing up

Activision Blizzard’s third-quarter results suggest the company has secured a robust position in the video game market and continues to strengthen its leading position. Despite reporting strong third-quarter results, shares of Activision plunged more than 7%. The stock, however, has managed to regain its upward trend, which throws light on investors’ confidence in Activision Blizzard.

Although the video game publisher has been performing very well, increasing declines in the mobile segment as well as a lack of new games could hurt the stock in the near term.

The stock currently trades near its all-time high, but it is not too late for long-term investors to initiate a position in the stock. Short-term investors should consider waiting for a better entry point before buying the stock.

Disclosure: No position in the stock mentioned in this article.

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