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Is Activision Blizzard Stock a Buy?

By Robert Izquierdo - Dec 22, 2020 at 7:11AM

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This gaming giant is having a triumphant year. Learn if its success can continue.

Activision Blizzard ( ATVI 0.12% ) is enjoying a stellar 2020. Consumers sheltering at home during the coronavirus pandemic dramatically increased the time they spent playing video games.

This translated into greater revenue and customer engagement for Activision Blizzard. Will that continue? Or does the advent of a COVID-19 vaccine signal the end of this trend?

Over the long term, it's unlikely Activision Blizzard can continue the kind of year-over-year revenue growth it saw this year. But that doesn't mean the company isn't worth investing in. Let's examine the factors that make Activision Blizzard a compelling investment.

Men holding controllers play a video game together.

Image source: Getty Images.

Consistent results

Activision Blizzard saw consistent success throughout 2020. It followed up a record second quarter with a third quarter that beat the company's prior outlook of $1.80 billion, ending Q3 with $1.95 billion in revenue. Its Q3 results led Activision Blizzard to raise its 2020 full-year outlook from $7.3 billion in revenue to $7.7 billion.

This goal is far above the $6.5 billion garnered in 2019, yet achievable given the company steadily increased its year-over-year revenue growth every quarter this year.

ATVI Revenue (Quarterly YoY Growth) Chart

Data by YCharts.

Its performance led several analysts to raise their stock price targets. JPMorgan Chase became the latest to do so on Dec. 16, raising its target from $95 to $101 per share.

It's likely Activision Blizzard's current success will continue beyond the fourth quarter. After all, the pandemic's impact will extend into 2021 since it'll take time to distribute the vaccine and get the pandemic under control. Add to this the recent launch of next-generation gaming consoles from Microsoft and Sony, which creates consumer demand for new games.

A winning strategy

The company's current success is no fluke. Its management team realized changes needed to happen to reflect the evolution of the video game industry and went through a transition phase in 2019.

Activision Blizzard aligned efforts around its core franchises, such as Call of Duty and World of Warcraft. This involved expanding Call of Duty into mobile and online multiplayer gaming experiences as consumer demand shifted to these areas.

Call of Duty's mobile version experienced 300 million downloads as it passed its one-year anniversary in Q3. It plans to launch in China soon, and 50 million consumers already pre-registered for the game in that market.

The company's other big franchise, World of Warcraft, rolled out new content, Shadowlands, on Nov. 23. It's now the fastest-selling video game in history.

The bottom line

Activision Blizzard is well-positioned to experience continued revenue growth in the near term. The company's moves at expanding its successful franchises have paid off, and the new gaming consoles deliver additional consumer demand.

The challenge lies in maintaining consumer interest in its games post-pandemic. Results such as its Activision division's 270% year-over-year Q3 revenue growth will be hard to replicate next year.

To that end, the company continues to deliver new products. It released the latest installment of its Call of Duty franchise, Black Ops Cold War, this month, and it's trying to replicate Call of Duty's success across its product portfolio. The company is working on a mobile installment of its popular Diablo franchise.

Activision Blizzard is a well-run company. Its Q3 net income was $604 million, nearly triple last year's $204 million, and it possesses $21.6 billion in total assets, compared to $7.2 billion in total liabilities. Its management team was able to adapt to the fast-moving video game industry and set the company up for outsized success in 2021.

For additional icing on the cake, Activision Blizzard provides a dividend. These factors make Activision Blizzard a solid company to invest in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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