Activision Blizzard’s stock (NASDAQ:ATVI) trades around $80 currently, rising a strong 36% since the beginning of the year, significantly outperforming the broader markets, which have moved a mere 3%. It traded at a pre-Covid high of $64 in February, and it is 26% above that level now. Also, ATVI stock has gained 44% from the low of $56 seen in March 2020, as the Fed stimulus largely put investor concerns about the near-term survival of companies to rest. Activision Blizzard’s gaming business is doing well in the current pandemic due to an increased demand in the wake of restriction on movement, with people eschewing more public forms of entertainment. Despite the rally in ATVI stock this year, we believe that the stock has more room for growth in the near future. Our conclusion is based on the current triggers in the gaming sector, such as growth in gaming demand due to the pandemic, as well as the launch of new generation consoles in the upcoming holiday season. We also compare Activision Blizzard’s stock performance during the current crisis vs. the 2008 recession in an interactive dashboard analysis, parts of which are highlighted below.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 49% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how Activision Blizzard and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Activision Blizzard vs S&P 500 Performance Over 2007-08 Financial Crisis
ATVI stock declined from levels of around $11 in September 2007 (pre-crisis peak for the markets) to levels of around $10 in March 2009 (as the markets bottomed out), implying ATVI stock lost a mere 11% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $11 in early 2010, rising by 14% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51%, followed by a recovery of 48%.
Activision Blizzard’s Robust Fundamentals
Activision Blizzard’s Revenues grew 51% from $4.3 Bil in 2015 to $6.5 Bil in 2019, primarily led by the King acquisition, best known for its Candy Crush franchise, and continued growth for Activision’s Call of Duty games. Its earnings also expanded 62% from $1.21 per share in 2015 to $1.96 in 2019. The earnings growth was higher than revenues, due to Net Margins expansion. Furthermore, the company’s Q2 2020 revenues were a strong 38% above the level seen a year ago, and the EPS figure of $0.81 in Q2 2020 compares with $0.53 in the prior year quarter. The growth was seen across segments led by higher user engagement. Looking forward, both Microsoft and Sony will launch their new generation consoles in the upcoming holiday season, and that is expected to drive the demand for software as well. Activision Blizzard will launch its Call of Duty: Black Ops – Cold War in the holiday season, which is expected to do well, in-line with the other Call of Duty games over the past few years.
Does Activision Blizzard Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Activision Blizzard’s total debt decreased from $4.9 billion in 2016 to $2.7 billion at the end of Q2 2020, while its total cash doubled from $3.2 billion to $6.4 billion over the same period. The company also generated $916 million in cash from its operations in the first half of 2020, and it appears to be in a great position to weather the crisis.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations
Going by the current trends and continued growth in demand for gaming, along with the expected launch of new generation consoles in the holiday season, the demand for Activision Blizzard’s games is likely to remain high in the near term, and we believe that ATVI stock has more room for growth in the near future.high quality portfolio to beat the market
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