Activision Blizzard (ATVI US)




Activision Blizzard 040122
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Investment Highlight - BUY


Activision Blizzard’s shares trade at 17.6x 2022 forward earnings. That’s lower than the average P/E of the S&P 500 Index, and less than half the P/E of the other large video game companies. The company’s shares look like a bargain, but there is a reason. Activision Blizzard’s management team badly mishandled allegations of employee sexual misconduct. The result was a corporate crisis which sent the shares down 28% during 2021. We believe the bad news is completely in the price, and the company only needs to begin addressing its workplace issues in order to get Activision Blizzard’s shares to recover.



ESSENTIALS

Activision Blizzard is a growth stock and deserves an above market multiple. The game-maker’s earnings grew 41% in 2020 and an estimated 30% during 2021. The pandemic boosted video game sales. Wall Street analysts are predicting a slowdown, but they still forecast Activision Blizzard’s earnings to grow at a compounded rate of 10% in 2022 and 2023. That is slightly faster than what is expected for average earnings growth for S&P 500 companies. Nevertheless, Activision Blizzard is trading at 17.6x forward earnings, while the S&P 500 is trading at 21x forward 12 month earnings.


The long-term prospects of the gaming industry are good. That is another reason Activision-Blizzard’s shares should not trade at a discount to the market multiple. The average US gamer age has increased from 30 years old in 2012 to +35-44 years old in 2020. The older demographic has more spending power. US gaming expenditure per capita is expected to continue to expand

(+15%-20% CAGR). Meanwhile, strong growth continues in developing markets like Latin America and India.


Activision may have the best portfolio of titles in the industry, anchored by Call of Duty, Candy Crush and World of Warcraft. In Nov last year, Activision’s Call of Duty: Vanguard was the top best-selling games of the month in the US, instantly becoming the 2nd best-selling game of 2021 to date. This is the 14th consecutive year a Call of Duty game has ranked as the best-selling game of its release month.