Share prices of Activision Blizzard (ATVI) dropped sharply after reaching a high of $104 earlier this month. Coincidently, the game producer held its annual BlizzCon event on Feb. 19-20 to discuss the latest developments with Blizzard titles, including Hearthstone, World of Warcraft, Overwatch, and Diablo.

Some investors anticipated hearing new updates at BlizzCon about the development of Diablo 4 and Overwatch 2, especially some kind of release timeline. But no release dates were issued for these titles, which means these titles are coming in 2022 at the earliest, and perhaps not until 2023.

Here are two reasons why this could be causing the stock to fall and why Activision Blizzard shares may not be the best value among top gaming stocks right now.

A red arrow pointing down with Benjamin Franklin's face and a stock chart in the background.

Image source: Getty Images.

1. Lack of near-term catalysts

The stock price advanced 56% in 2020 and continued to rise leading up to BlizzCon. Investors have had a lot to digest, such as last year's record business performance, along with the near-term prospects for more growth from new games in the pipeline.  

Although the timing of new releases doesn't change the long-term value of the business, stocks tend to move based on the presence, or absence, of near-term catalysts that can keep revenue and profits marching higher. When there is a lack of near-term visibility for growth, that can trigger a stock price correction.

Without Diablo 4 or Overwatch 2 releasing this year, Activision Blizzard will be more dependent on continued momentum in Call of Duty, which generated 36% of the company's total bookings in 2020, in addition to content updates across other franchises. Blizzard announced several new content updates coming later this year, including a new expansion for Hearthstone and a new update for World of Warcraft: Shadowlands

The release of Diablo 3 in 2012 broke sales records for PC games at the time. While we won't get to see Diablo 4 try to go for another sales record any time soon, Blizzard is releasing a remastered version of Diablo 2 on PC and consoles later this year, which will serve as a bridge until the next release. The mobile version, Diablo: Immortal, is expected to launch later this year, too. 

Still, these content updates for existing games are not expected to move the needle as much as a new game launch, which leads to the next reason why the stock is down.

2. Lower growth expectations 

With no Diablo 4 or Overwatch 2, management has lower expectations for growth in 2021. Current guidance calls for revenue and adjusted earnings per share (EPS) to slightly improve over 2020. Analysts expect bookings (an adjusted measure of revenue) and adjusted EPS to improve by just 1% and 5%, respectively, in 2021, which is roughly in line with management's guidance. 

The lower growth expectations may be tilting the value proposition in favor of Activision's peer, Electronic Arts (EA -0.65%). Analysts expect EA to grow bookings and adjusted EPS by 6% and 10%, respectively, in EA's fiscal 2022 ending in March. The upcoming new installment in the Battlefield series, which is planned for launch during fiscal 2022, is a major catalyst and explains why analysts expect EA to grow faster than Activision this year.  

What's more, EA stock is currently cheaper than Activision, across three popular measures of value.

ATVI PE Ratio (Forward) Chart

ATVI PE Ratio (Forward) data by YCharts

The bottom line

If you already own Activision stock, you should stay the course. The company has a stellar track record of delivering wealth-building gains. A $10,000 investment in Activision made 20 years ago, at the height of the dot-com bubble, would be worth nearly $1 million today, with dividends reinvested. 

I'm not in favor of picking winners in the video game industry. I believe the best course to get exposure to the long-term growth prospects of interactive entertainment is to diversify across several top gaming stocks. Activision Blizzard is one my favorite stocks in the industry, but it clearly doesn't offer the best value at current price levels.

If you're looking to add money to a gaming stock right now, you might want to consider Electronic Arts, which is experiencing strong growth in its sports franchises, such as FIFA and Madden, and has plans to increase its player base and viewers for its EA Sports titles to 500 million in the next five years.