Buy Activision Blizzard for Huge Gains

Activision Blizzard (ATVI) announced first quarter ended March 31, 2016 total non-GAAP revenue of $908 million, up 29.2 percent year-over-year from $703 million of non-GAAP revenue during the same period last year. The revenue for the quarter also exceeded the prior revenue guidance of $800 million. Going forward, the company estimates second quarter of 2016 total non-GAAP revenue of $1.375 billion.

Activision declared first quarter of 2016 net non-GAAP operating income of $252 million or $0.23 per share, up 23.5 percent year-over-year from net non-GAAP operating income of $204 million or $0.16 per share in the first quarter of 2015.
Moving ahead, Activision estimates second quarter of 2016 non-GAAP earnings of $0.38 per share.

The global game publishing company reported continued year-over-year expansion in both its top and bottom lines primarily driven by significant customer traction for the company’s innovative gaming solutions, attracting all customer age groups from children to adults.

Activision has uniquely developed a solid focus on the development of market-leading game franchises with relentless focus on developing player investment, superior engagement and extraordinary reach. Therefore, superior quality content allows for deep user engagement, impressive engagement allows for premium and continued revenue in-flow from popular gaming franchises, continued revenue in-flow allows for attractive re-investment and likely cash flows and these key cash flows again attract advanced technology, talent and established processes enable superior-quality content delivery.

A strong portfolio

Activision has a robust portfolio of highly-engaging owned franchises with a total of 544 million Monthly Active Users (MAUs) along with a solid 42 billion hours of yearly entertainment all through its popular franchises including, Call of Duty, Destiny, Skylanders, World of Warcraft and many more. Call of Duty franchise has significant MAUs that surpassed the last quarter. Call of Duty: Black Ops III was sold in a package with nearly 85% of every PS4 traded during the first quarter. Call of Duty: Infinite Warfare is a solid franchise developed in 3 years period from the unique company studio called Infinity Ward which is believed to be launched in the beginning of 2016.

The strategic development of core gaming franchises by Activision through new investments into the design, development and launch of user-engaging games is expected to drive notable customer traction for the company’s hugely in-demand games and thus, delivering impressive top line growth.

The deepening user engagement is further observed from the fact that over 10 billion hours are being spent by gamers playing its games during the quarter. Since last 1 year, Activision has registered 42 billion hours being spent with its outstanding content compared to Netflix, FB videos and Sports Leagues recording 42.5 billion hours, approximately 37 billion hours and nearly 10 billion hours respectively which highlights the industry-leading position of Activision among its competitors.

Moving ahead, Activision is expanding opportunities for consistent player investments through deep user engagement by growing the key game franchises including, King metrics having improved quarter-over-quarter with expansion in net bookings for each paying player, monthly total players and complete gross bookings. Call of Duty illustrated solid sales record for in-game content delivery and with all-time high season pass attach rates. The recently introduced Destiny’s loot box registered double-digit attach rates.

The industry-leading range of Activision’s innovative gaming titles is expected to continue to expand the already strong user engagement, growing the number of playing hours and hence, delivering sustainable long-term company growth while offering attractive shareholder returns.

Conclusion

Overall, the investors are advised to “Buy” equity in Activision Blizzard, Inc. considering the company’s solid near-term and long-term growth prospects with healthy PEG ratio of 1.07, indicating attractive company growth compared to somewhat weaker industry’s growth average of 0.86 only. The profit margin of 17.23% seems attractive. However, Activision needs to optimize its debt-burdened balance sheet with notable total debt of $5.84 billion against weaker total cash position of $2.87 billion only, restricting the company to make future growth investments.
Published on Jun 20, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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