Growth Stocks: Activision Blizzard

• Activision Blizzard is one of the best names in the video game industry with highly competitive and profitable franchises.

• The company is backed by strong secular tailwinds where people have enough time and disposable income to invest in games that matter.

When it comes to the video game business, Activision Blizzard (ATVI.US) is one of the best names in town with highly competitive products and margins. In this article we will look at why Activision is well positioned to perform well in the long term at both macro and micro levels.

The most important macro factor we could consider about Activision is the growing video game industry that attracts billions of gamers around the world. According to estimates, the global gaming industry will reach a market value of $ 180 billion by the end of 2021 and is expected to reach $ 270 billion in 2025.

Games are a challenging, rewarding, and addictive experience, which is why studies have found that a good portion of gamers would stop sleeping just to take their characters to the next level. With more than 2.7 billion gamers around the world today, there is even a rehabilitation center that cares for people with gambling disorders.

At the micro level, Activision has some of the longest lasting and most profitable franchises in the industry. The Call of Duty franchise has sold more than 400 million units worldwide between the first Call of Duty game in October 2003 and the launch of Call of Duty: Black Ops Cold War in November 2020. In April, Activision announced that Call of Duty: Warzone reached 100 million players worldwide and since then it is one of the most played titles (it is free to play in some platforms but has microtransactions) worldwide.

While waiting for the next results, highlight those from Q1

In the publication of results for the first quarter of 2021, it was highlighted that Call of Duty Mobile has had more than 500 million downloads. With 150 million monthly active users (MAUs), Activision reported revenue of $ 891 million (an increase of 72% year-over-year) and an operating margin of nearly 50% for the quarter. This fall, Activision will release another premium Call of Duty title that the gaming community believes will be called WW2 Vanguard.

On the other hand, we have Candy Crush (King), which reported 258 million MAUs and revenues of $ 609 million (up 22% year-on-year) at the end of the first quarter of 2021. Although King has seen an MAU decrease since 2015, the division has been a very consistent front-line contributor to Activision. As a casual game that people play whenever they get a chance, Candy Crush is a much less seasonal franchise that regularly rakes in non-ad dollars for Activision.

Lastly, players can't forget Blizzard with its timeless classics like World of Warcraft and Diablo. Although Blizzard's MAUs have been falling steadily since 2018, veteran players are willing to invest in new expansions like World of Warcraft: Shadowlands and the re-release of the “Wow Classic” because this is something they grew up with. This is also why Blizzard still contributes a significant portion of revenue each quarter. In the first quarter of 2021, Blizzard's revenue increased 7% to $ 483 million, and the operating margin was strong at 43%, with segment operating income accounting for nearly a quarter of total operating income.

Overall, it seems clear that Activision's top franchises account for a larger share of total revenue. For fiscal 2020, 2019, and 2018, the top 3 franchises (Call of Duty, Candy Crush, and World of Warcraft) together accounted for 76%, 67%, and 58% of net revenue.

It's not about how games are supposed to be monetized through a starting price, advertising, or microtransactions. It's about how games can create a memorable and catchy experience in which players will be willing to spend a significant part of their lives developing their own stories and characters, and Activision's successful franchises clearly demonstrate this ability. In other words loyalty.

Technical Analysis

Activision Blizzard has performed well since the beginning of the pandemic and after reaching its last historical maximum at $ 104.40, it began a corrective process that has sought to consolidate levels between the last previous reference maximum, at $ 88 and the level Fibo 23.6% of the entire momentum, at approximately $ 92.

source: xStation

From here, we will be on the lookout for the bullish guideline of rising lows that maintains the direction of the price, along with an EMA200 that will smooth the price by keeping the price above the key level at $ 88 per share.

Furthermore, the consolidation with a 1:1 overbalance (A / B) ratio developed at the end of 2020, matches with the amplitude of the current corrective movement. That could be a signal of the end of the correction and the start of a new momentum, just before the earnings release of Q2 results on August 3.

Darío García
XTB Spain