What goes up must come down, that’s the logic behind Activision Blizzard’s (Activision Blizzard Stock Quote, Chart NASDAQ:ATVI) behaviour as the stock continued to climb over 2017 and 2018 —until it promptly dropped off a cliff in October.
A number of factors go into this, says Barry Schwartz, chief investment officer for Baskin Wealth Management, most prominent being investor zeal over the company’s Call of Duty: Black Ops 4, which while selling well enough, didn’t knock anyone’s socks off.
But Schwartz expects a nice rebound from ATVI.
“I think the market got overly excited about one of its new games, Call of Duty, which didn’t live up to expectations and the amazing hype. That’s why the stock ran up and pulled back,” says Schwartz to BNN Bloomberg. “And it obviously fell with the entire stinky market over the past few months.”
“The reason why we love it is, you know, the video games are so different from when I was a kid where you just bought a game and then two years later you bought a new game. Now, you spend $50 to buy a game and then you keeping buying new maps, new characters, new guns and you end up spending hundreds of dollars on one game and it’s all free margin for Activision,” he says.
Since its split from parent company Vivendi Games in 2013, Activision Blizzard saw its share price rocket up an amazing 500 per cent with the continued success of a number of its series including Call of Duty, World of Warcraft and Candy Crush. The company last reported its quarterly earnings in November when it posted a modest profit beat of 52 cents per share versus the expected 50 cents, while generating revenue of $1.66 billion over its Q3 which matched analysts’ estimates. Management’s forecast for Q4 of $3.05 billion came in a little under the expected $3.06 billion, however. (All figures in US dollars.)
The company has also made news over the past couple of weeks for leaking executives, first with Blizzard co-founder Mike Morhaime stepping down in October after 27 years with the company, then more recently losing CFO Spencer Neumann, reportedly to Netflix, and CFO Amrita Ahuja, reportedly to Square.
But with the strength of its titles — and considering the extent of the stock’s pullback — investors should now be thinking about ATVI, says Schwartz.
“We think this is a good buying opportunity because Call of Duty Black Ops, their newest game, is going to go free to compete with Fortnite. We think Call of Duty could be as good as a Fortnite, so we’re hoping,” he says.
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