Activision Blizzard (ATVI - Free Report) shares have climbed 20% in 2020 as the coronavirus-induced stay-at-home push boosts the already-booming video game industry. ATVI’s quarterly financial results also wowed Wall Street on May 5 and its outlook is impressive within a space that’s poised to outperform during social distancing and beyond.
First Quarantine Quarter
Activision Blizzard topped our first quarter fiscal 2020 earnings estimate by roughly 50%, with net bookings up 20% from the year-ago period at $1.52 billion. The company also raised its full-year outlook—which we will get to later—at a time when many companies are pulling their guidance due to uncertainty. ATVI closed Q1 with 407 million monthly active users.
Strength from both its Call of Duty and World of Warcraft franchises helped lift the firm. The company noted that Call of Duty: Modern Warfare recorded its highest sell-through for the franchise outside of a launch quarter.
ATVI also stated that “unit sell-through accelerated in March, driven by upgrades from Warzone as well as rising demand amidst shelter-at-home conditions.” Plus, “each of Blizzard’s key franchises experienced a month-on-month increase in MAUs in March as a result of shelter-at-home tailwinds.”
Activision Blizzard has experienced accelerating momentum in April, and executives said the coronavirus shouldn’t impact its product pipeline since the games can be worked on remotely.
CEO Bobby Kotick said on the company’s earnings call that it was “on track to deliver compelling new content, including the World of Warcraft: Shadowlands expansion and the next premium Call of Duty release,” in the second half of the year.
Meanwhile, ATVI’s esports organization has “quickly pivoted to remote production and continues to deliver live esports for both the Call of Duty League and the Overwatch League.” This could help grow the broader esports market at a time when traditional live sports are still struggling to come back.
ATVI stock is up 20% in 2020 and 25% since the market’s March 23 lows. The stock is currently trading roughly 6% off its recently-reached 52-week highs at around $70 per share. Despite its recent climb, Activision Blizzard shares still have nearly 15% more room to run before they hit their September 2018 highs.
The nearby chart shows that ATVI has outpaced its peer group—which includes Electronic Arts (EA - Free Report) , Nintendo (NTDOY - Free Report) , Hasbro (HAS - Free Report) , Take-Two Interactive (TTWO - Free Report) , and others—over the last five years, up 174% against 129%. ATVI is currently trading at 7.7X forward 12-month Zacks sales estimates, which is above its one-year median but below its highs of 8.1X.
Investors should also be pleased to note that Activision Blizzard’s $0.41 quarterly dividend payout is up 11% from 2019. ATVI’s 0.56% yield falls just short of the 10-year U.S. Treasury’s 0.70%, and its low payout ratio means the company will likely be able to continue to raise its dividend, while also investing in growth. And ATVI looks even stronger when we consider that rivals TakeTwo and EA don’t currently pay dividends at all.
Overall, Activision is set to benefit from the broader growth within the global gaming industry, which is projected to expand from $151 billion in 2019 to nearly $200 billion by 2022. And its Toys - Games – Hobbies industry rests in the top 6% of our more than 250 Zacks industries right now.
Our current Zacks estimates call for ATVI’s adjusted Q2 earnings to soar 79% from the year-ago period to hit $0.68 a share. Meanwhile, second quarter revenue is projected to jump 40% to touch $1.68 billion, which highlights its expected quarantine strength. As we touched on earlier, Activision Blizzard raised its full-year fiscal 2020 revenue and earnings outlook on May 5.
The company’s fiscal 2020 sales are then projected to climb 10.6%, with its 2021 revenue set to jump another 8% higher. On the bottom line, Activision Blizzard’s adjusted fiscal year EPS figures are expected to climb 20.4% and 10.8%, respectively over this stretch. Investors can also see that ATVI’s bottom-line outlook has significantly improved since it reported its Q1 results, which is no easy task amid pandemic uncertainty.
Activision Blizzard’s positive earnings revisions activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment, alongside its “A” grade for Momentum in our Style Scores system. ATVI also boasts a strong balance sheet and investors might want to consider it as both a stay-at-home play alongside Netflix (NFLX - Free Report) and others, as well as a longer-term bet on gaming.
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