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Company Overview: Activision Blizzard, Inc. (NASDAQ: ATVI) is engaged in developing and publishing interactive games and services. It distributes entertainment content and services on video game consoles, personal computers (PCs), and mobile devices. It also offers digital advertising and operates esports leagues through its subsidiaries.
ATVI Details
Key Takeaways from Q2FY21 (ended June 30, 2021)
New Product Launches: On July 01, 2021, it announced a 135-card expansion (Questline cards) by United in Stormwind for Hearthstone, a digital card game played by over 130 million people worldwide. Each of these cards provides intriguing stories of mercenary characters.
Previously, on June 13, 2021, ATVI launched Diablo II: Resurrected, a role-playing game, to Windows PC, Xbox Series X|S, Xbox One, PlayStation 5, PlayStation 4, and Nintendo Switch. The multiplayer open beta will be officially launched in August.
Segment-Wise Revenue Generation: The company sells full games and in-games, subscriptions, and licenses software to third-party firms through three reportable segments.
Other Key Findings in Q2FY21
Region & Platform-Wise Performance in Q2FY21; Analysis by Kalkine Group
Balance Sheet & Liquidity Position
Key Metrics: In Q2FY21, ATVI's EBITDA and operating margins were 47.1% and 41.8%, higher than the industry median of 12.3% and 5.9%, respectively. ROE stood at 5.5%, an improvement from 4.3% for Q2FY20. Debt/Equity was 0.22x as of June 30, 2021, vs. 0.20x as of June 30, 2020.
Growth & Profitability Profile; Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders together form around 37.72% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and Fidelity Management & Research Co. LLC hold the maximum stake in the company at 8.27% and 5.39%, respectively, as also highlighted in the chart below:
Top 10 Shareholders; Analysis by Kalkine Group
Risk Analysis
Outlook
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the last six months, ATVI stock corrected ~17.28%. The stock is currently close to the mid-point of its 52-week range of USD 71.19 to USD 104.53. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of high teens (in percentage terms). We believe that the company can trade at a discount compared to its peer's average, considering the risks involved with the recent State of California complaint, customer concentration, dependence on few popular franchises, and technology risk. We have taken peers like Electronic Arts Inc. (NASDAQ: EA) and Take-Two Interactive Software, Inc. (NASDAQ: TTWO). Considering the robust top and bottom-line growth, continuous product expansions, encouraging outlook, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 85.00, up ~2.42% as of August 11, 2021.
ATVI Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.
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