Buy the Dip? Activision Blizzard Stock Analysis
Activision Blizzard is one of the leaders in the video game industry. Over the years, video games have gone through a huge transformation. In the past, they were what little kids played while avoiding their homework. Now, gaming is literally a profession. The world’s highest-paid gamers rake in millions of dollars per year. In 2019, one gaming tournament brought in over 100 million viewers (more than Super Bowl LV). With this surge in gaming, many investors want to break down an Activision Blizzard stock analysis.
Activision Blizzard is the world’s largest video game software company by revenue. It has some of the world’s most popular games. To name a few, it owns Call of Duty, World of Warcraft and Candy Crush. Unfortunately, it’s also been plagued by recent management scandals. Does this mean that it’s a good time to buy the dip? Or should you wait until management gets their act together before investing?
Let’s take a look at an Activision Blizzard stock analysis.
NOTE: If you want to learn about other video game stocks, check out my list of top video game stocks.
Activision Blizzard (Nasdaq: ATVI) Stock Analysis
What Does Activision Blizzard Do?
Activision Blizzard is the largest video game software company by revenue. It has three main divisions. Activision develops gaming consoles. Blizzard produces games for PC gaming. King Digital develops and publishes mobile games.
As mentioned, Call of Duty, World of Warcraft and Candy Crush are its most popular games.
Here are a few of its other popular titles:
- Crash Bandicoot
- Farm Heroes
- Spyro the Dragon
- Tony Hawk
Activision Blizzard stock has been the subject of multiple scandals lately. Let’s take a closer look at those.
- CEO Bobby Kotick may step down – Bobby Kotick has been the CEO of Activision Blizzard since 1991 (31 years). Under his watch, there have been over 500 instances of misconduct. This includes workplace harassment, discrimination and unfair pay. Bobby Kotick has said that he will step down if he’s unable to fix these issues.
- Employees walk out – More recently, the WSJ released a report. It stated that Kotick knew about allegations of sexual assault earlier than he claimed. After this report was released, some employees staged a walkout. They also created a petition demanding Bobby Kotick step down. The petition gathered about 1,800 signatures.
- Firings and product delays – Activision Blizzard has fired over 20 employees due to these allegations. These firings have resulted in product delays.
So how have these scandals impacted the Activision Blizzard stock price recently?
Activision Blizzard Stock Movements
In 2020, Activision Blizzard posted annual revenue of $8.09 billion. This was a 24% year-over-year increase from 2019. It also posted a total net income of $2.2 billion. This was a 46.17% year-over-year increase from 2019.
After the reports of misconduct, Activision Blizzard slumped about 40% from its high. Its stock is down 30% overall so far in 2021. However, it’s still up 67% over the past 5 years.
For this article, I’ll keep the fundamental Activision Blizzard stock analysis brief. Instead, I want to dive into the recent allegations. Do these allegations create a good opportunity to buy the dip?
In 2018, Nike released a controversial ad with Colin Kaepernick. In this ad, Nike sided with Kap’s decision to take a knee during the national anthem. The ad sparked outrage across the country. Many people hopped on social media to announce a boycott and burn Nike products. During the backlash, Nike’s stock dipped about 10% (end of 2018). However, this boycott ultimately put no visible dent in Nike’s sales. Since the beginning of 2019, Nike’s stock is up over 130%.
Activision Blizzard could be experiencing a similar issue. Now, don’t get me wrong. Activision Blizzard’s scandal is considerably worse than Nike’s ad. Activision Blizzard clearly has a dark, deep-seated issue that they need to address. However, just like Nike, Activision’s underlying business remains strong.
Activision still owns some of the world’s most popular video game titles. The World of Warcraft franchise expects to deliver its strongest engagement in a decade. Candy Crush is the top franchise in the app store. Call of Duty mobile grew its net bookings year-over-year.
Gamers most likely don’t consider the CEO’s actions when playing their favorite games. Very few are going to second-guess their decision to buy the latest Call of Duty. Based on its strong portfolio of games, the long-term outlook for Activision Blizzard stock still looks strong.
With that said, there’s one crucial thing to consider.
Bobby Kotick: In or out?
There is one big question mark for investors right now. That is whether Bobby Kotick will step down as CEO. If I were an investor, I would wait for this decision to be finalized before buying/selling. I view Kotick stepping down as a good thing. As the 30-year CEO, it’s clear that he has created an environment where misconduct is allowed.
If Kotick steps down, it will certainly calm the employee backlash. This will influence many developers to stay. At a software company, having top-notch developers is critical. From there, the company can hire a new CEO and start fresh. When this happens, Activision Blizzard stock could quickly rebound.
But what if Kotick decides to stay on?
Should I Buy Activision Blizzard Stock? Potential Downsides
If Kotick decides to stay then it’s likely that employees will start to leave in droves. The worst-case scenario is that developers leave for rival companies. This will hurt game quality as well as development timelines. Ultimately, it will negatively impact Activision’s business for years to come.
It’s also worth noting that Activision’s business partnerships are also at risk. Namely, Sony, Microsoft and Nintendo have spoken out against Activision Blizzard. Nintendo’s CEO stated, “I find these accounts distressing and disturbing. They run counter to my values as well as Nintendo’s beliefs, values and policies.”
These companies control the gaming consoles where Activision’s games are played. If any of them were to cut ties with Activision then it could be crippling for its business. Again, if Kotick stays on then the risk of these companies cutting ties is higher. To me, the decision on whether or not to buy Activision Blizzard stock relies on Bobby Kotick. I would wait until he makes his decision, or the decision is made for him.
Activision Blizzard is also a major player in the metaverse. To read more, check out my article on the best metaverse stocks to buy.
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I hope that you’ve found this Activision Blizzard stock analysis valuable. As usual, base all your investment decisions on your own due diligence and risk tolerance.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.