Shares of video game giant Activision Blizzard (ATVI) have crashed over the past year, but the former growth stock made up some of that lost ground on Wednesday thanks to an analyst upgrade. The stock had gained about 4.6% by 2 p.m. EDT.
Analyst Gerrick Johnson at BMO Capital Markets upped his rating on Activision to outperform and raised his price target on the video game stock from $43 to $60. The upgrade was driven by a few factors, including the popularity of World of Warcraft Classic, a rerelease of the original version of the popular subscription-based game. Johnson raised his outlook for World of Warcraft subscribers from 3 million to 5.4 million for 2020.
Image source: Activision Blizzard.
Other catalysts Johnson pointed out include cost savings, related to recently announced layoffs, that can be invested in growth areas like e-sports; a rebound for the company's Hearthstone online card game; a deep catalog of classic games that could be remastered; and the potential for the popularity of Fortnite, developed by privately held Epic Games, to fade.
Activision's recent results have been lackluster -- second-quarter revenue tumbled nearly 15%, and earnings per share dropped more than 17%. The company is investing in its flagship franchises, which will take time to pay off. The Call of Duty franchise will get a new game in October, along with a mobile version, and the company announced in June that it's sold eight franchise slots for its upcoming Call of Duty global league.
While there are plenty of reasons to be bullish on Activision in the long run, 2019 will be a rough year for the company. Activision's guidance calls for revenue to tumble 17.5% from 2018, and for adjusted EPS to contract by 25.7%.
