Activision Gets Set for the Holidays

12/06/2017 5:00 am EST

Focus: TECHNOLOGY

James Kelleher

Director of Research & Senior Analyst: Technology, Argus Research Corporation

The February 2016 acquisition of King Digital Entertainment catapulted Activision (ATVI) into mobile casual gaming, the fastest-growing segment of the videogame industry, notes Jim Kelleher, analyst with the leading independent research firm Argus Research.

Apart from the 'Candy Crush' franchise, we think that Activision has gained access to King's strategic talent. King should also bolster Activision's presence in the fast-growing Asia Pacific market, which is ATVI's weakest geographic segment.

Activision is also focusing on broadening its videogame audience, as demonstrated by its initiatives in downloadable content, e-sports tournament play, advertising, internet and television broadcasting, and consumer products.

The company is also shifting its business strategy, first by extending game life and spurring engagement through periodic releases of additional downloadable content, and second by increasing digital revenue.


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Activision is fighting the long-term secular decline in packaged games with increased online functionality. It is developing expanded, high-margin versions of its franchise games, developing 'free-to-play' games for that growing market segment, and introducing new game concepts.

The shares have risen 75% on a total-return basis year-to-date compared to the S&P 500's 17% gain; however, they have spent the last four months in a trading range in the low $60's.

The enterprise value/EBITDA multiple of 17.9 is near the peer median, though we believe that a higher multiple is warranted given Activision's leadership in the fragmented gaming sector. In our view, ATVI deserves to trade at a premium to peers based on the company's industry leadership.

The company is well-positioned for the holiday season and 2018. We are maintaining our buy rating on Focus List selection Activision Blizzard with a target price of $70 per share.

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