It might sound strange to see Activision Blizzard's (ATVI +0.00%) stock referred to as "under the radar." After all, the company has a market capitalization of roughly $49 billion and is responsible for some of the biggest franchises in the video game industry.
On the other hand, the company's stock price has fallen roughly 29% over the last year, while shares of Roblox and Unity Software have climbed 23% and 36%, respectively. These other game companies have a focus on content creation and a more direct connection to the red-hot metaverse trend, and they've stolen much of the gaming industry spotlight. Activision Blizzard stock may have fallen out of favor recently, but it stands out as a top play for investors looking to benefit from the long-term growth of the interactive-content space.
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What's behind the stock pullback?
The last year has been tough for Activision Blizzard. Engagement for some of the company's free-to-play games has come in below expectations following stellar numbers in 2020, and it looks like this year's annual, mainline Call of Duty (CoD) installment will wind up putting up numbers that fall significantly short of the previous game's performance.
The company also announced delays for several titles, pushing Diablo: Immortal to a 2022 release and postponing Diablo IV and Overwatch 2 from their planned 2022 release windows into 2023. Adding another risk factor, some of the company's studios seem to be going through some workplace-culture issues. A harassment and discrimination lawsuit filed by the State of California has been at the forefront of press coverage surrounding the company. In some respects, it's not hard to see why many investors are overlooking the video game publisher.
Activision Blizzard stock is now down roughly 40% from its 52-week high, and it trades at roughly 16.5 times this year's expected earnings. The company was one of the S&P 500's worst performers in 2021. For investors interested in building exposure to the gaming space, the stock looks worthwhile at current prices, and it could offer a big upside for patient shareholders.
Activision Blizzard's strengths are underappreciated
With the key 2021 release Call of Duty: Vanguard putting up relatively soft sales, some investors are worried that Activision Blizzard's most important franchise is faltering. Despite underwhelming performance for its lineup in 2021, delays for key releases, and workplace culture issues creating added uncertainty, the company still has a fantastic collection of resources and looks primed to maintain a leading position in its industry.
Investors shouldn't sweat the relatively weak sales for this year's Call of Duty: Vanguard too much. The Call of Duty franchise consists of multiple series, and some series and associated settings are simply much more popular than others. This variety within the franchise helps make it possible to release a new game each year without it getting stale, and it's been a key component of the franchise's incredible longevity.
In the winter of 2016, there was concern that weak performance for Call of Duty: Infinite Warfare signaled the decline of the property. Instead, the CoD property returned to the much more popular series, including Modern Warfare and Black Ops, and roared back to more impressive sales numbers.
The company also scored big wins with two free-to-play (F2P) CoD games, bridging the property to the increasingly popular F2P business model on mobile, PC, and console platforms without diminishing the appeal of its mainline franchise. Between a collection of releases, the Call of Duty franchise posted its best-ever performance in 2020. It's normal for CoD's performance to vary somewhat, and investors can take advantage of the market's underestimation of the property's outlook.
Play the long game
While near-term underperformance for some of the company's titles looks more concerning in the context of key releases in the Diablo and Overwatch franchises, these titles are still coming out and should deliver strong performance upon release. The company trades at a forward earnings multiple that looks low in historical context even with these big sequels being pushed to 2023, and the business is set up for blockbuster results next year and beyond.
