Is Activision Blizzard (ATVI) Playing It Safe? Analyst Weighs In

Wedbush's Michael Pachter spotlights upside potential ahead considering the robust ATVI lineup for the year.


On the heels of a solid first quarter print delivered by Activision Blizzard, Inc. (NASDAQ:ATVI) last night, Wedbush analyst Michael Pachter is out with a bullish research note, continuing to point to these shares on his Securities Investment Committee’s Best Ideas List.

“Activision Blizzard could earn $3.00 as early as 2018 by optimizing King’s untapped ad opportunity and monetizing its Overwatch League,” comments the analyst, who reiterates an Outperform rating on ATVI stock with an $81 price target. This notably implies a close to 20% upside from current levels. (To watch Pachter’s track record, click here)

For the first quarter, ATVI trounced its own guide and either met or surpassed Street-wide expectations. The video game maker hit $1,384 in revenue, outclassing the analyst’s expectations of $1,371 million, the Street’s $1,316 million forecast, and far ahead of its own guide of $1,280 million. Pacther highlights, “Top-line grew 16%, driven primarily by in-game content and live services given the lack of any significant releases during the quarter. The Blizzard segment was particularly strong, driven in part by higher-than-expected pre-sales for the upcoming World of Warcraft expansion slated for August, while both Activision and King contributed revenue that was roughly in-line with our estimates.” ATVI’s $0.38 in EPS came up one cent short of the analyst’s expectations while beating out the Street by three cents as well as its own guide calling for just $0.31.

Meanwhile, the analyst is not surprised to see an “exceedingly conservative” guide for the second quarter. ATVI sets second quarter expectations for $1,350 million in revenue and $0.31 in EPS, against the analyst’s forecasts angling for $1,576 million and $0.54 along with the Street’s expectations of $1,486 million and $0.47. “Guidance sounds exceedingly conservative to us, as Activision has a major expansion pack for Destiny 2 launching during the quarter, should have revenue growth from Call of Duty catalog sales, and should see modest growth from King and Blizzard,” explains Pachter, anticipating “more competitive games” to follow the CoD installment.

“Results appeared minimally impacted by the rapid success of Fortnite. It does not appear that Fortnite had a material impact on Activision’s revenues during the quarter, although the company’s Asian revenues fell slightly short of our forecast,” Pachter adds, who sizes up the Fortnite revenue impact at under $30 million per quarter, currently mirrored in his lower expectations for the second quarter. Yet, as soon as Black Ops IIII hits its October launch, the analyst bets the video game maker can capture back its core Call of Duty audience- especially should the game include a Battle Royale play mode.

Pachter concludes on a note of confidence, that even with a play-it-safe guidance raise, consider how strong the ATVI lineup looks for 2018; a lineup that from where this analyst is standing points to upside ahead. The ATVI team boosted its revenue guide for 2018 from $7,450 to $7,475 million and EPS from $2.50 to $2.51. Looking ahead to the rest of the year, the analyst believes Overwatch League has an approximate $100 million to go in its revenue contribution, with Pachter seeing “substantial revenues” waiting in the wings for the tech player.

TipRanks indicates ATVI is a strong bullish bet on the Street, based on analytics. Consider that out of 11 analysts polled in the last 3 months, 9 are bullish on ATVI stock while 2 remain sidelined. With a return potential of nearly 19%, the stock’s consensus target price stands at $79.30.

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