Please ensure Javascript is enabled for purposes of website accessibility

Is Activision Blizzard Stock a Buy?

By Travis Hoium - Mar 2, 2021 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Making video games may not be the best business to be in today.

The pandemic was a great time to be a video game company, and Activision Blizzard's (ATVI 0.91%) stock price reflects that. Shares are up 63.9% since a year ago, and they don't seem to be losing momentum. 

While the narrative has been great for Activision Blizzard, however, the underlying business trends may not all be pointing up. Big game franchises aren't what they once were, and it's easier than ever to be a game developer, increasing supply across the industry. Activision Blizzard has tailwinds from the pandemic, but it may not be the best way to play video game stocks today. 

Person playing games on a yellow floor.

Image source: Getty Images.

Unpacking the growth story for Activision Blizzard

The last year has been strange for Activision Blizzard, to say the least. It was clearly one of the beneficiaries of the pandemic, which left millions of people out of work with more time to play video games. Revenue rose 24.6% to $8.1 billion, while net income rose 46.2% to $2.2 billion.

ATVI Revenue (TTM) Chart

ATVI Revenue (TTM) data by YCharts

The revenue growth has been driven by new consoles coming out and the growth in mobile games like Call of Duty Mobile. The mobile launch of the game helped Activision Blizzard come off a revenue trough in late 2019 -- but you can see above that growth had been sluggish if we look back three or four years. 

There are a number of trends that are keeping Activision Blizzard's growth lower than that of some competitors. One is that big-name franchises aren't selling like they did five or ten years ago, and another is that it's easier than ever to be a video game developer. 

A better buy in video games

The real power in video games today isn't in the big developers, which could once push out content through their distribution channels and simply out-spend competitors. The distribution barriers have broken down since most games are delivered electronically, and the video game development business has gotten easier with tools like game engine Unity (U 1.96%)

According to Unity's management, 71% of the top 1,000 mobile games in Q4 2020 were built with Unity. That's incredible breadth, and ensures the company will grow as long as mobile gaming grows. Compare that to Activision Blizzard, which is reliant on specific titles in a world where the number of titles competing for eyeballs is growing. 

ATVI Revenue (Quarterly YoY Growth) Chart

ATVI Revenue (Quarterly YoY Growth) data by YCharts

As the video game pie grows and the market share that big developers have to themselves shrinks, it's companies like Unity that will be the big winners. Plus the company has tools for PC games, VR, AR, and much more. No matter what kind of content people are using in the digital age, Unity has the tools to build up-to-date content, and that's the most valuable thing in video games today. 

Unity is the better buy in video game stocks

Activision Blizzard isn't a bad company, and it could indeed continue to grow. But with a P/E ratio of 34 and questions about future growth, this isn't the best buy in video games. My money is on Unity's high-growth future instead. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Activision Blizzard, Inc. Stock Quote
Activision Blizzard, Inc.
$78.57 (0.91%) $0.71
Unity Software Inc. Stock Quote
Unity Software Inc.
$37.54 (1.96%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.