Shares of Activision Blizzard (ATVI - Free Report) have climbed over 8% during the last three months on the back of a solid first-quarter performance, overall momentum in the gaming industry, and a major new partnership with Disney (DIS - Free Report) . So let’s see if Activision Blizzard stock might be worth buying ahead of the release of its Q2 financial results Thursday.
Activision Blizzard and Disney announced on July 11 that the two sides reached a multi-year rights agreement that saw ESPN, ESPN2, Disney XD, ABC, and various Disney-owned streaming services broadcast the playoffs of the gaming giant’s new esports league. The deal is also set to include coverage of the second season of the Overwatch League and will amount to hundreds of hours of live coverage and highlights. Amazon’s (AMZN - Free Report) widely popular Twitch streaming platform also covered the Overwatch League this season.
Activision Blizzard’s Overwatch league features 12 teams, spread across the U.S., Europe, and Asia. The league also boasts some big-name owners, including New England Patriots owner Robert Kraft, who all paid $20 million per team to reserve franchise spots in the inaugural season. Intel (INTC - Free Report) , T-Mobile T-Mobile (TMUS - Free Report) , and HP (HPQ - Free Report) all sponsored the Overwatch League this season. Meanwhile, the overall esports economy is expected to total $906 million in 2018, up from $696 million in 2017, according to market research firm Newzoo—with the potential to hit $1.5 billion by 2020.
The company looks poised to cash in on the growing popularity of esports, which features other industry powers such as Take-Two Interactive (TTWO - Free Report) . Meanwhile, Activision Blizzard posted record first-quarter digital, mobile, and in-game revenues and net bookings, with operating cash flow up 29% from the year-ago period. The company’s well-known franchises like Call of Duty and Overwatch continued to drive top-line growth, while Candy Crush remains one of the most popular mobile games in the U.S.
ATVI closed Q1 with 51 million monthly active users across its Activision titles, while Blizzard’s MAUs reached 38 million. King’s—which includes Candy Crush—monthly active user reached 285 million. Investors should note that the global games market, made up of 2.3 billion gamers, is projected to climb by 13% in 2018 to hit $137.9 billion, based on an April Newzoo report.
Price Movement & Valuation
Moving on, shares of ATVI have surged over 300% during the last five years, which outpaces its industry’s 180% climb and crushes the S&P 500’s roughly 70%. Over the last 24 months, Activision Blizzard stock has jumped by roughly 84%. However, shares of ATVI have slowed down over the last year, up around 18%, which includes some major turbulence.
Activision Blizzard stock is currently trading at 26.7X forward 12-month Zacks Consensus EPS estimates, which represents a discount compared to its industry’s 30.3X average. ATVI stock has traded as high as 31.1X over the last year, with a one-year median of 27.1X. Therefore, Activision Blizzard’s valuation picture is not that stretched at the moment. However, over the last year, ATVI has traded as low as 23.9X and much lower over the last five years.
Our current Zacks Consensus Estimate is calling for ATVI’s Q2 revenues to touch $1.40 billion, which would mark a 1% decline from the year-ago quarter. For the year, the firm’s top line is expected to expand by roughly 5% to hit $7.53 billion.
At the bottom of the income statement, Activision Blizzard’s adjusted quarterly earnings are projected to sink by 34.55% to reach $0.36 per share, while its full-year EPS figure is expected to expand by over 15% to $2.63 per share.
Activision Blizzard’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $0.36 per share, which is one cent better than our current consensus estimate. The company has also topped our quarterly earnings estimates in 10 out of the last 12 quarters.
Activision Blizzard is currently a Zacks Rank #1 (Strong Buy) and might be worth considering ahead of its Q2 earnings release. The company also follows Sony (SNE - Free Report) and Nintendo’s (NTDOY - Free Report) strong quarterly results.
Make Sure to check back for our full analysis of Activision Blizzard’s actual Q2 results after market close Thursday.
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