Activision Blizzard, Inc. (ATVI) New Investments Could Meaningfully Boost Profits for the Next Several Years, Says Michael Pachter

ATVI teams up with Amazon's Twitch in an esports media-rights alliance that may not dramatically hike profitability just yet- but Wedbush's Michael Pachter is positive long-term.

Activision Blizzard, Inc. (NASDAQ:ATVI) shares are rising 3% today as investors still buzzing about Tuesday’s big news: The video game maker is eyeing dollar signs circling a rapidly evolving esports market, as its Overwatch League (OWL) has strategically joined forces with Amazon’s Twitch. The league, inspired by the company’s popular shooter game, is now primed to broadcast matches for Overwatch video game players in a two-year agreement with Amazon.

These shares have already earned a spot on the Wedbush Securities Investment Committee’s Best Ideas List, and Wedbush analyst Michael Pachter continues to make a bullish case for the tech company. Even if earnings for this year may not be anticipated to be colossal, investments down the line make this investment worthwhile.

As such, the analyst reiterates an Outperform rating on ATVI stock with a $75 price target, which implies an 8% upside from current levels. (To watch Pachter’s track record, click here)

Pachter explains, “Activision Blizzard could earn $3.00 by 2018 by optimizing King’s untapped ad opportunity and monetizing its Overwatch League. While we have modeled more modest earnings for 2018, we think that Activision’s new investments have the potential to significantly expand its margins and profits for the next several years.”

“Although increasing collaboration with streaming leader Twitch and strong early interest from gamers and the media alike appear to bode well for the first season of OWL, we expect a much more muted impact on profitability for Activision Blizzard and its partners,” adds the analyst.

Ultimately, “We believe that Twitch paid for the right to be OWL’s exclusive third-party streaming partner, and that Twitch will capture any revenue upside from its streams. The rights fees paid to Activision Blizzard by Twitch are reportedly roughly $45 million per year; however, a profit split with team owners will mean that Activision Blizzard sees only 50% of that amount after expenses,” Pachter surmises, projecting a roughly $20 million in marketing costs annually with the streaming rights deal to bring to the table merely “modest” gains each year.

Each team is said to realize $20 million in franchise fees throughout a period of the next coming years, but when taking under account ATVI’s financial performance bigger picture, the advantage is just “slight” for now.

TipRanks highlights a confident Wall Street surveying this video game maker, with 13 of 15 analysts polled in the last 3 months bullish on Activision stock and just 2 left on the sidelines. With a return potential of 8%, the stock’s consensus target price stands at $74.92.