Investment Thesis – Why You Should Buy Activision Blizzard
We maintain our outperform rating on ATVI with a target price of $89. Activision reported its 3Q20 results on Oct 29th, beating both consensus top and bottom line. The company continues to demonstrate why it is best in class content developer in the gaming space. ATVI reported revenue and adj. EPS of $1.77B/$0.71 vs consensus $1.70B/$0.64. Management increased 4Q20/FY20 revenue and EPS guidance to $2.73B/$1.09 and $8.1B/$3.35. ATVI continues to benefit from stay-at-home restrictions caused by COVID-19. The company experienced a boost in player engagement in Q3 led by the COD franchise. The main question posed by investors is the sustainability of these results in a post-pandemic world. We believe that ATVI is well positioned to continuously deliver strong results in a post-pandemic world given its strong player engagement amongst its portfolio of games and its robust pipeline of content scheduled for release in the near term. COD Black OPS: Cold War was released on Nov 13th with WOW Shadowlands expansion following suite on the 23rd. The following games are yet to be announced but are expected to be released in 1Q21: Overwatch 2, Diablo Immortal, & Crash Bandicoot: On the Run! ATVI is in a solid position to keep the strong earnings momentum alive through 2022. The company continues to strengthen its ecosystem of content by growing its presence e-sports leagues, advertising, internet, television broadcasting, casual/free to play, and downloadable content. As global economies await vaccine and economic recovery, the gaming industry is a good space to invest in as they will continuously benefit from cyclical downturn caused by the virus. We believe ATVI will outperform its peers if management can sustain the following factors: produce high quality content to keep users engaged, execution of strategic initiatives, successful transition to online and mobile, and deeper engagement in the Asia-Pacific region.