Why Activision Blizzard, Inc. Shares Soared

Is Activision's jump meaningful? Or just another movement?

Feb 7, 2014 at 7:27PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our thesis.

What: Shares of Activision Blizzard, (NASDAQ: ATVI) popped 14% Friday after the video-game specialist turned in better-than-expected fourth-quarter results.

So what: Adjusted net revenue came in at $2.272 billion, which translated to adjusted net earnings of $0.79 per share. By contrast, analysts were only expecting earnings of $0.73 per share on sales of $2.22 billion.

What's more, Activision not only increased its dividend by $0.01, to $0.20 per share, but also announced it will repay a $375 million outstanding term loan later this month.

Now what: For the full-year 2014, Activision expects adjusted revenue of $4.6 billion, with adjusted earnings of $1.26 per share. Analysts, on average, were modeling 2014 earnings of $1.28 per share on sales of $4.66 billion.

However, management explained the discrepancy stems from the fact that the majority of its major game launches rest in the second half of the year, which means greater revenue deferrals into 2015. Considering Activision's greatly improved capital structure, and with shares trading at a reasonable 15.6 times this year's estimated earnings, I can't blame investors for bidding up the stock today. Even after today's pop, I think Activision will still prove a bargain for long-term shareholders going forward.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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