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ATVI - Worth the Investment?

Updated: Aug 7

Activision Blizzard (ATVI) just released pretty stellar earnings; earnings 81 cents/share (non-GAAP, 52.8% YoY growth) and revenues of $1.93 B (38.4% growth YoY). If ATVI's stock price had not already appreciated substantially running into earnings, I estimate the stock would've shot much higher...

The company is performing well, but does it offer an enticing investment opportunity for new investors? My thoughts:

  • The stock, from a P/E multiple (37.2X) and P/S multiple (8.7X), is quite rich. Prior to this quarter, revenues growth, which I view as the most important valuation factor for ATVI, was a bit sluggish and didn't justify its valuation. However, with revenue growth now above 30%, the stock does look ever more enticing.

  • The business model is a plus; invest up front to make a game, then market it and pull in sales. Also, in today's locked up economy, content is king and ATVI produces some of the best interactive content out there. Maybe some day a big dog, looking to expand their portfolio of content, will look to snap up one of these independent game makers, certainly seems possible.

  • ATVI's cash balance outpaces its outstanding debt by more than 2:1. Therefore, ATVI is sitting well from a leverage perspective and has some flexibility for an acquisition if needed.

  • Conclusion: I like ATVI long term, but will admit it is a bit rich. I'd say buy and watch the growth rate; if it maintains solid growth, it will be a long term winner.





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