ATVI Stock Forecast: Upcoming New Consoles Can Boost Activision’s Fortune

This ATVI stock forecast article is written by Motek Moyen Research, Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • The 2020 release of new game consoles is why KeyBanc Capital recently raised its price target for ATVI from $80 to $83. 
  • I gave Activision’s stock a price target $73 last April 26. This stock is now trading above $76. I’m therefore raising my PT to $86.
  • The ongoing pandemic is still boosting the revenue of video games. Playing video games is more rewarding and a better stress buster than watching streaming movies.
  • Activision Blizzard touts a TTM total cash & ST investments of $5.98 billion. Its total debt is only $2.675 billion. Activision can afford to buy Warner Bros. Interactive Entertainment.
  • Paying $4 billion should give ATVI 100% ownership of Warner Brothers Interactive Entertainment. AT&T will probably accept + stock for it. 

I reiterate the buy rating I gave Activision Blizzard last April 26. I’m also raising my price target from $73 to $86. ATVI was trading less than $67 when I made that April proposition. ATVI closed above $76 last June 26. I agreed with KeyBanc Capital’s assessment that upcoming releases of new gaming consoles is a catalyst for ATVI. KeyBanc has a lower price target of $83 for Activision Blizzard’s stock. As per TipRanks’ record, I’m 75% accurate on ATVI forecasts. No KeyBanc Capital analysts can equal my achievement on predicting Activision Blizzard’s stock trends.  

ATVI Stock performance
(Source: Seeking Alpha Premium)

The PlayStation 5 and the Xbox X Series new consoles may not launch until Q4 ’20. It is still worth the risk buying more ATVI. I’m highly confident that this stock can shoot above $83 before 2020 ends. This can happen if Microsoft or Sony launches their new gaming console before this year is over. This ongoing pandemic is the ideal time for new gaming consoles. Console gaming is still a $45.2 billion/year business that is growing at 6.8% growth rate. Microsoft and Sony will continue to prioritize console gaming hardware for many years to come.  

(Source: Newzoo)

ATVI is a buy because it has strong presence in console, mobile, and PC games. Next to Tencent (TCEHY), Activision Blizzard is the best investment you can have on the pandemic-boosted $159.3 billion video games industry. The PC and console versions of Call of Duty: Modern Warfare is a cash machine for ATVI. As per NPD Group’s report, Activision’s Call of Duty: Modern Warfare is still the year-to-date top grossing video game in North America. 

 (Source: NPD Group)

SuperData Research’s May 2020 list of top-grossing video games in the world also acknowledged Call of Duty: Modern Warfare as a global hit among PC and console gamers. It is also an incentive for us to buy more ATVI that Activision’s Candy Crush Saga mobile game is still among the world’s top-earning mobile games. 

(Source: SuperData Research)

As per SensorTowerCandy Crush Saga’s net revenue of $19 million from Android and $32 million from iOS devices. ATVI is a buy because its 8-year old mobile game Candy Crush Saga still touts a monthly net sales of more than $50 million. Net sales means the 30% cut of app store owners was already deducted. 

ATVI is a buy because its mobile games subsidiary, King Digital Entertainment is still generating more than $2 billion in annual sales. No thanks to COVID-19, King Digital will probably wrap up 2020 with $2.3 billion in annual sales. 

(Source: Statista)

ATVI Deserves Higher Valuation, leading to a more bullish outlook for ATVI stock forecast

Activision Blizzard deserves a price target of $86 because it is still relatively undervalued compared to Glu Games (GLU) and Zynga (ZNGA). ATVI has more upside potential because its forward GAAP P/E multiple is only 33.61. This is notably lower than GLUU’s forward P/E valuation of 73.36. The market will eventually correct the glaring error that ATVI’s TTM Price/Book valuation is only 4.52, while GLUU has 6.83. 

valuation supports ATVI Stock Forecast
(Source: Seeking Alpha Premium)

ATVI should have higher valuation ratios than Glu Games because it is the far more profitable company. It is illogical of investors to favor Glu over Activision Blizzard. ATV’s Net Income Margin of 24.19% is much higher than GLUU’s -0.56% and ZNGA’s 4.58%. 

profitability supports ATVI Stock Forecast
(Source: Seeking Alpha Premium)

Activision Blizzard also touts a very robust balance sheet and strong cash flow. Its TTM Total Cash is $5.98 billion and its net operating cash flow is $1.53 billion. ATVI can easily afford to pay the reported $4 billion that AT&T (T) wants for its video games division, Warner Bros. Interactive Entertainment (or WBIE). 

financial statements support ATVI Stock Forecast
(Source: Seeking Alpha Premium)

Activision can pay in cash and stock to acquire WBIE from AT&T. WBIE has in-house IP and long-term licensing with Lego and DC Comics. For only $4 billion, Activision will own WBIE’s 28 video games that could produce $1.5 to $3 billion in additional annual revenue. The DC Comics IP alone is already a gold mine for video games development purposes.

(Source: WBgames.com)

Conclusion

The ongoing pandemic that’s keeping most people at home will continue to boost the video games revenue of ATVI. Playing video games is the better entertainment than watching streaming movies. The relative undervaluation of ATVI against some of its overrated video games industry peers (GLUU and ZNGA) should be exploited promptly. Buy more ATVI before this stock goes above $80. 

Activision should seriously consider buying Warner Bros. Interactive Entertainment. It will notably boost its weak 7.12% 5-year revenue CAGR. Zynga is a serial acquirer and it helped that smaller company achieve a 5-year revenue CAGR of 15.65%. Activision can buy WBIE for $2 billion cash and $2 billion worth ATVI shares.

My buy rating for ATVI is reinforced by its bullish 1-year forecast from I Know First. The AI of I Know First is confident that ATVI will trade higher within the next twelve months. I am highly confident that after 1 year, ATVI would have breached $86. 

ATVI Stock Forecast on Jun 28, 2020

Past I Know First Success With ATVI Stock Forecast

I Know First has been bullish on ATVI Stock forecast in the past . On 26 Apr, 2020, the I Know First algorithm issued a bullish 3-month forecast for ATVI with a signal of 2.31 and a predictability of 0.39, the algorithm successfully forecasted the movement of the ATVI’s shares so far. After almost 3 months, AVTI shares already rose by 13.88% in line with the I Know First algorithm’s forecast. See chart below.

ATVI Stock Forecast on Apr 26, 2020

This bullish ATVI stock forecast was sent to the current I Know First subscribers on 26 Apr, 2020. 

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