Record Results for Activision Blizzard Push Share Price Higher

Activision Blizzard (Nasdaq: ATVI) reported earnings after the market closed yesterday (May 3rd), and the game company continues to exceed its own expectations:

• Record net revenue of $1.97 billion, up from $1.73 billion (14% increase year-over-year)
• Net income of $500 million, up from $426 million (17% increase YOY)
• Earnings of $0.66 per share, up from $0.57 per share (15.8% increase YOY)

If you’ll recall from a few weeks ago, the main thing I was watching for in my investment in Activision Blizzard was its subscribers, first for its legacy products from big game franchises like Warcraft and Call of Duty, but also from its users of its mobile games. Though it no longer break out individual game titles, it did highlight some usage numbers from some of its flagship properties.

As a whole, Activision Blizzard had 374 million Monthly Active Users (MAUs), which measures the number of users that access a particular game in a given month. King, the mobile game division, had 285 million MAUs, driven by the #1 and #2 highest grossing titles in the U.S. – Candy Crush Saga and Candy Crush Soda Saga. Activision saw 51 million MAUs, driven primarily by games in the Call of Duty series, including the most recent entry Call of Duty: WWII. Finally, Blizzard had 38 million MAUs, with players of World of Warcraft, Overwatch, and Hearthstone engaging well with the company.

But we shouldn’t judge a company solely on what they have done in the past. An investment should be considered based on what it looks like the future of the company holds. Based on these results, however, Activision Blizzard modestly raised its full year guidance for the whole of 2018. It expects net revenues to be around $7.4 billion, with earnings of $1.79 per share. These would be record results for the company, and should the company meet these expectations, investors should be very pleased.

Because of a loss in the 4^th quarter of 2017, Activision Blizzard’s P/E is currently nearly 150! We won’t use that number, and instead calculate an estimated price using an adjusted P/E of 68, which would be the P/E based on the current price and the average annual earnings ($0.98 per share) for the previous three years. This would result in an expected price of around $120 per share, a total upside of 80%! I don’t personally expect the stock to go that high, so this number will probably be adjusted over the course of the year as 2018 earnings overtake the loss from the 4^th quarter of 2018.

Nevertheless, I expect Activision Blizzard to continue along this same trajectory, and could easily expect prices to be approaching triple digits by the end of the year. That would be a very satisfying outcome from one of the longest held – and better performing – stocks in this portfolio.

Until next time…

Disclosure: I have purchased shares of Activision Blizzard on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.