Briefly (key findings)
Consider the following speculative idea: buy shares of Activision Blizzard (ATVI) and wait for them to rebound.
The bottom line: It can allow you to get up to 38% recovery, since everything is in order with the companies.
The reason for the growth of shares - their long fall. Since June, a drop of 38%
The plan: buy shares today at $61 and below if possible.
Risk or next support line: Stock could drop to $51 (16% loss)
What are we based on? The analysis took into account technical analysis, fundamental indicators, business organizations, our personal experience. However, it must be understood that a speculative idea can not come true.
Why do we think it will burn out?: Activization Blizzard continues to be a strong business, maintaining revenue growth.
And now, if a long story:
In November, the value of Activision Blizzard shares fell by almost a quarter. At first, investors reacted negatively to the IT company's quarterly reports, mainly due to the delay in the release of popular video games Overwatch-2, Diablo-IV and Diablo Immortal, and against the backdrop of slow growth in stock prices. After the November publication The Wall Street Journal, in which journalists investigated and made accusations against the company's CEO Bobby Kotick, its employees demanded the resignation of the management. The essence of the accusations boils down to the fact that the head of the company was aware of the discriminatory practices and harassment that prevailed in the team, however, with his filing, all the negativity was swept under the carpet, and the perpetrators were shielded. The replacement of the CEO is expected to cheer up investors, but for now the company is trying to improve the internal climate and reports quarterly on progress.
Home of Activision Blizzard - one of the leaders in the computer games market - is the United States. In addition to games for personal computers, the company also produces game content for consoles, smartphones and tablets. It is she who owns World of Warcraft and Call of Duty - popular franchises that have received worldwide recognition.
The list of the largest purchasers of video games, franchises and gaming licenses from this developer includes such giants as American corporations Apple, Microsoft, Google and the Japanese corporation Sony. They provided 57% of sales in 2020.
In the third quarter, the company's cash turnover exceeded $2 billion, up 5,9%. Activision recorded $641 million in revenue, with Blizzard generating $493 million and King $652 million. Adjusted quarterly EBITDA reached $918 million. Third-quarter earnings per share increased from 78 to 82 cents, i.e. by 5,1% compared to the same period in 2020.
Given the projected increase in interest rates, the company gets a head start and can outperform the competition thanks to a small leverage. The current balance of the IT developer reached $9,7 billion, while its total debt is $6,4 billion.
The expected volume of sales in the IV quarter is 2,02 billion dollars, in total for the annual period - $ 8,66 billion. Experts believe that turnover growth will be 7,5% this year and 3,5% next year. A significant improvement is expected in 2023, when this figure will reach 13,3% due to the contribution made by video games released in 2022.
According to the P/E multiple, the shares will be sold at a discount of 11,5% next year. In the case of EV/EBITDA, this figure is forecast to be 41,7%. In our opinion, this indicator will decrease due to the improvement of the company's market position. But it should be taken into account that in less than a month the shares have already lost about a quarter of their original value, and in the near future the likelihood of a strengthening correction remains, however, there is still hope for fundamental factors. Now the support levels are at $57,62 and $51,22.
Recently, lawsuits have been filed against the company related to discrimination and harassment against employees, the courts are still ongoing. Workers have already repeatedly struck, and some top managers had to quit. If the owners of Activision Blizzard meet the demands of the employees by firing Bobby Kotick, investors will take this as a good sign.
To summarize
Now shares can be purchased at a price of 61,76 dollars. And then one of the following options may arise:
- Wait for growth to 90 dollars. Shares had a similar value in June.
- Expect a $105 stock level return.
- Falls to the level of 51 dollars.