Activision – The Comeback?
Activision – The Comeback? | Activision (ATVI) had a financially great 2018 but on the other hand they seemed to make many mistakes and its reputation was being hit alongside with furious gamers who lost confidence in the company. More about this story here.
Just, as it was expected ATVI’s wounds started to heal and it looks like the company is finding the way out of the ravine. Again, its not a financial issue as ATVI is rock solid fundamentally, but obviously more mistakes they made last year and they could feel the pain on the moneyside in the long run.
About a year passed and ATVI went to through some dark cycles on the stock market hitting a bottom just under $40/share. For ATVI, it’s fairly low altough it’s fair valuation is about $45/share so technically it was alright but taking into account that the stock dropped cc.50% from $80ish/share, it was a big hit. The stock found its bottom and it traded around $45/share for some months then the new Call of Duty news and also the success and echo of Sekiro: Shadows Die Twice started to bring it back to the bull territory again.
ATVI also optimized its costs in February. In other words they fired 800 employees out of the 9600. Maybe thanks to this huge lay-off Q1 and Q2 met the expectations but they are down compared to the same quarters in 2018 and for a growth company such as ATVI, it’s not good.On the other hand not sure why ATVI is so much in the growth tech stocks because it’s an old and well established company dated back to 1979. Anyhow, the results were not bad and it looks like the stock is coming back to the $60share range soon.
The Bull Momentum
ATVI has the power of the bulls at the time of this post but who knows how long it will last. I try to summarize the bull and bear stimuluses.
The Bulls :
- new Call of Duty
- lower operating costs
- the upcoming Blizzcon in November is also a good pumper
The Bears :
- dropping MAU (monthly active users)
- strong and getting stronger competition : Nintendo, Tencent, Sony just to mention some real beasts out there and there are EA, TTWO and other large Japanese companies in the list.
- high P/E ratio. It’s 25 and ATVI is already, currently overvalued by about 20%.
- slower than expected growth rate
- the lost confidence might never come back
- plus I’m sure there are many investors in the line who got in to ATVI at around $60/share last year and they just patiently wait for the no-loss selling opportunity which might be coming very soon
Overall, ATVI captured the bull momentum but I think it’s for the short term. My guess is that the stock will go up to $63ish til the Blizzcon (November 1-2) maybe with 1-2 high spikes up to $68 and then it will be a sell-off and will close the year at around $59.
I currently see no real good investment opportunities in ATVI neither the short nor the long term. At $45ish it’s a good buy with the current fundamentals but let’s say above $50 it might not be worth the time to hold the stock for 10-15% gain.
2018 was a peak point of video game companies and was the year when crazy discounts started its heydays and have been applied to almost any video game which was more than cc. 3 weeks “old”. Plus, there are completely free-to-play video games which are actually good. In this environment I don’t see ATVI to be an $80 stock again. On the other hand, in these crazy stock market days anything can happen and you can never know if the stock goes back up to its 2018 highs. Overall, I would consider any expectations over cc.$65/share for ATVI currently, as gambling.