Activision Blizzard (NASDAQ:ATVI), the parent company of King Digital, Activision, and Blizzard Entertainment, reported its first-quarter earnings last week and shattered expectations. Since introducing a free-to-play mode for its popular franchise Call of Duty in March of 2020, the company has seen record engagement. 

But despite the great performance and strong financial results, the stock is still down from its highs due to a recent sell-off in the tech sector at large. With this short-term price movement in mind, investors should be asking whether or not this is the right time to buy.

Group of young men playing video games.

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A look back at Q1

In order to determine whether or not this is a good buying opportunity, it's important to understand how the company is performing operationally. 

In the first quarter, Activision Blizzard grew overall revenue by 27% year over year to $2.3 billion, led by strong momentum in its Call of Duty franchise. Operating income followed suit, growing by 30% versus the same period in the year prior. 

Thanks to the introduction of new game modes, Call of Duty was home to more than 150 million monthly active users this quarter -- triple the amount from two years ago. The franchise also delivered a 50% operating margin for the quarter, accounting for more than half of the company's overall operating income. 

To supplement Call of Duty's success, King and Blizzard both reported a positive boost in revenues as well. Driven by hit titles like World of Warcraft and Candy Crush, both companies saw strong user engagement and helped Activision Blizzard deliver an all-time high in Q1 operating income. 

What's ahead?

Despite the robust success that Activision's Call of Duty title is currently driving, there are lots of other factors that shareholders should be excited about as well. Since Activision Blizzard is home to many long-standing and value-rich franchises, the company's recent revival of Call of Duty has written the script for its other franchises. 

Gaming across new systems has seen major growth over recent years with mobile now emerging as the largest gaming market globally. In response to this trend, Activision Blizzard has focused on leveraging its existing franchises to these new ways of playing. For example, Activision introduced Call of Duty: Mobile in 2019 and just crossed 500 million total downloads this quarter. This multi-system strategy opens Activision up to a much larger user base and helps raise awareness for its previous, single-system franchises. 

CEO Bobby Kotick clarified the company's strategy when he stated on the latest conference call that "Call of Duty is the template we're applying to our proven franchises." Now that the blueprint for leveraging the company's valuable assets has been created, Activision is currently working to apply it to the famous Blizzard title, Diablo.

Diablo 2 is set to launch later this year for PCs and consoles to help reinvigorate its long-standing fanbase. Following this launch, Blizzard is planning to release its mobile title, Diablo Immortal, shortly after. And all of this comes as a precursor to the long-awaited launch of Diablo 4, which Activision is yet to set a release date for. 

Too cheap of a valuation

However, even with the impressive results the company has produced and the clear roadmap to future growth, Activision's stock seems to trade at a bit of a discount. Over the last 12 months, Activision Blizzard has generated roughly $2.9 billion in free cash flow (the amount of cash a company generates) yet trades at an enterprise value (market cap minus net cash) of about $66 billion -- or an enterprise value to free cash flow multiple of 23 times. For reference, Activision's game-publishing peer Electronic Arts (NASDAQ:EA) trades at about 20 times its free cash flow but is growing revenue at a fraction of the pace.

If Activision Blizzard is able to successfully execute on the strategy that management has laid out, this should serve as an attractive buying opportunity for long-term investors.

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.