Activision Blizzard is now a pass, says Roth

With its acquisition by Microsoft all but sewn up, investors have little reason to stay long on Activision Blizzard (Activision Blizzard Stock Quote, Charts, News, Analysts, Financials NASDAQ:ATVI), according to Roth Capital Partners analyst Eric Handler. Lowering his rating from “Buy” to “Neutral” on Friday, Handler said the company’s fundamentals remain strong.

Video game developer Activision Blizzard reported its second quarter 2023 financials on Wednesday, with revenues hitting $2,207 million compared to $1,644 million a year earlier. EPS was $0.91 per share compared to $0.48 per share for the Q2 2022.

“We delivered a 50 per cent year-over-year increase in net bookings, operating income growth over 70 per cent, earnings per share growth over 80 per cent, and a record quarter for Blizzard with over $1 billion in net bookings for the first time,” said Bobby Kotick, CEO of Activision Blizzard, in a press release.

Shares vaulted ahead last week on news of a US federal court decision saying the Federal Trade Commission had not shown sufficient evidence that competition would be substantially impacted by Microsoft’s acquisition of Activision Blizzard, a monster $68.7 billion deal first announced a year and a half ago.

The two companies also announced on Wednesday an extension of the deadline to close the deal, first established as July 18 and now pushed back to October 18.

With the acquisition pegged at $95 per Activision Blizzard share and ATVI’s stock price now around the $92-$93 mark, Handler sees little upside to owning shares. He said there is a “very high” likelihood that the deal will soon close, and he pointed as evidence to the US court announcements in favour of the transaction as well as what appears to be a softer stance by the UK’s Competition and Markets Authority.

“Microsoft’s acquisition of Activision Blizzard is seemingly nearing completion and the deal spread has narrowed to around three per cent. Due to limited capital appreciation potential, we are cutting our rating while raising our price target from $88 to the $95 takeout price (22.6x our 2023 EPS),” Handler wrote.

On Activision Blizzard’s second quarter results, Handler called them better-than-expected, with bookings of $2.461 billion up 50 per cent and modestly short of Handler’s $2.484 billion estimate but better than the consensus call at $2.328 billion. EPS was a beat of both Roth’s and the Street’s estimates.

“All three reporting segments increased in the quarter led by Blizzard (+164 per cent), which benefited from over tn million of units sales from Diablo IV and increased engagement from Diablo Immortal,” he said.

At press time, Handler’s new $95 per share target represented a projected 12-month return of three per cent.