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Category: Stock Market and Activision Blizzard
Date: 6 May 2020 Stock Price: $68.53 We take a look at the 1st quarter earnings report of their 2020 fiscal year interactive entertainment company Activision Blizzard, owners of Call of Duty, Candy Crush and World of Warcraft. With lockdowns and social distancing measures implemented across the world, the group has seen strong demand for its products and had a very strong first quarter 2020.
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About Activision Blizzard Inc.
Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is a leading standalone interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision's Call of Duty®, Spyro™, and Crash™, Blizzard Entertainment's World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®, and King's Candy Crush™, Bubble Witch™, and Farm Heroes™. The company is one of the Fortune "100 Best Companies To Work For®." Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world. More information about Activision Blizzard and its products can be found on the company's
Overview of Activision Blizzard's 1st quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
Segmental Revenues for Activision Blizzard Inc. for 1st quarter 2020:
Segmental Operating Income for Activision Blizzard Inc. for 1st quarter 2020:
Operating margins for the various segments of Activision Blizzard for 1st quarter 2020:
- Total net revenues: $1.788 billion (down from $1.825 billion for the same quarter of the previous year)
- Total net revenues decreased by -2% over the last 12 months
- Total costs and expenses: $1.176 billion (down from $1.687 billion for the same quarter of the previous year)
- Total costs and expenses decreased by -6.3% over the last 12 months
- Net income: $505 million (up from $447 million for the same quarter of the previous year)
- Weighted average common shares outstanding 774 million (up from 770 million shares for the same quarter of the previous year)
- Diluted earnings per common share $0.65 (up from $0.58for the same quarter of the previous year)
- PE ratio of Activision Blizzard: 26.4
- Cash and cash equivalents $5.906 billion
- Cash and cash equivalents per share: $7.63
- Cash and cash equivalents makes up 11.1% of Activision Blizzards current market capital
- Cash and cash equivalents makes up 30.1% of Activision Blizzards total assets
- Accounts receivable, net: $590 million
- Accounts receivable makes up 3% of the group's total assets
- Goodwill in Activision Blizzard: $9.763 billion
- Goodwill per share: $12.61
- Goodwill makes up 49.8% of Activision Blizzard's total assets
- Total shareholders’ equity in Activision Blizzard: $13.021 billion
- Total shareholders equity per share: $16.82
- Activision Blizzard is trading at 4.1 times its stockholders equity which is just outside the expected range of between 2 and 4 time that most firms tend to trade at.
- For some perspective the average price to book value of firms in the S&P 500 is 3.34 times. Read more about the S&P 500 here.
Segmental Revenues for Activision Blizzard Inc. for 1st quarter 2020:
- Activision: $519 million
- Blizzard: $452 million
- King: $498 million
Segmental Operating Income for Activision Blizzard Inc. for 1st quarter 2020:
- Activision: $184 million
- Blizzard: $187 million
- King: $156 million
Operating margins for the various segments of Activision Blizzard for 1st quarter 2020:
- Activision: 35.5%
- Blizzard: 41.4%
- King: 31.3%
Activision Blizzard's management commentary on their 1st quarter 2020 earnings report
SANTA MONICA, Calif.--(BUSINESS WIRE)--May 5, 2020-- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced first-quarter 2020 results.
“Our goal to connect the world through epic entertainment is more important to our players than ever before,” said Bobby Kotick, Chief Executive Officer of Activision Blizzard. “We delivered strong financial results for the first quarter, and are raising our full year outlook. I have been awestruck by the strength of our employees and their families during this difficult time. Whether managing healthcare or childcare, performing public service or community service, our teams around the world have shown ingenuity and resilience. In the face of so many difficulties, our employees have made certain that the joy, the engagement, and the benefits of gaming remain an effective way to help keep our 400 million players around the world connected and safe.”
Operating Metrics
For the quarter ended March 31, 2020, Activision Blizzard’s net bookingsB were $1.52 billion, as compared with $1.26 billion for the first quarter of 2019. Net bookingsB from digital channels were $1.36 billion, as compared with $1.07 billion for the first quarter of 2019. In-game net bookingsC were $956 million, as compared with $794 million for the first quarter of 2019. For the quarter ended March 31, 2020, overall Activision Blizzard Monthly Active Users (MAUs)D were 407 million.
COVID-19 Response
At Activision Blizzard, our number one priority is the health and safety of our employees and their families. All of our offices moved to work-from-home environments by mid-March. We are covering all costs of testing and treatment for affected employees and their families, and we have increased access to tele-health resources and contracted private doctors and medical support in regions where our employees live and work. And we are continuing to find other ways to support our employees and their families as we navigate through this unprecedented situation, including services to help families balance work and home life.
The digital nature of our content means our creative talent can continue to work on our product pipeline from home. While the shift to remote working adds complexity and challenges in some areas of the game development process, we are implementing mitigation measures to address these areas and, based on the work to date, we still expect to deliver a robust slate of content over the remainder of the year.
We have leveraged our game platforms to disseminate critical health and safety information while offering in-game events and rewards to promote social distancing. We have made donations to world class health organizations and medical centers in cities where our employees live and work, funding promising convalescent blood therapies and drug trials. And we have made an additional contribution to our own Call of Duty Endowment to continue placing veterans into high-quality jobs.
The increasingly digital, recurring and cash-generative nature of our operations remains one of our fundamental strengths. With a strong balance sheet, low capital intensity and a track record of disciplined capital allocation, we have substantial flexibility as we navigate through an uncertain environment.
“Our goal to connect the world through epic entertainment is more important to our players than ever before,” said Bobby Kotick, Chief Executive Officer of Activision Blizzard. “We delivered strong financial results for the first quarter, and are raising our full year outlook. I have been awestruck by the strength of our employees and their families during this difficult time. Whether managing healthcare or childcare, performing public service or community service, our teams around the world have shown ingenuity and resilience. In the face of so many difficulties, our employees have made certain that the joy, the engagement, and the benefits of gaming remain an effective way to help keep our 400 million players around the world connected and safe.”
Operating Metrics
For the quarter ended March 31, 2020, Activision Blizzard’s net bookingsB were $1.52 billion, as compared with $1.26 billion for the first quarter of 2019. Net bookingsB from digital channels were $1.36 billion, as compared with $1.07 billion for the first quarter of 2019. In-game net bookingsC were $956 million, as compared with $794 million for the first quarter of 2019. For the quarter ended March 31, 2020, overall Activision Blizzard Monthly Active Users (MAUs)D were 407 million.
COVID-19 Response
At Activision Blizzard, our number one priority is the health and safety of our employees and their families. All of our offices moved to work-from-home environments by mid-March. We are covering all costs of testing and treatment for affected employees and their families, and we have increased access to tele-health resources and contracted private doctors and medical support in regions where our employees live and work. And we are continuing to find other ways to support our employees and their families as we navigate through this unprecedented situation, including services to help families balance work and home life.
The digital nature of our content means our creative talent can continue to work on our product pipeline from home. While the shift to remote working adds complexity and challenges in some areas of the game development process, we are implementing mitigation measures to address these areas and, based on the work to date, we still expect to deliver a robust slate of content over the remainder of the year.
We have leveraged our game platforms to disseminate critical health and safety information while offering in-game events and rewards to promote social distancing. We have made donations to world class health organizations and medical centers in cities where our employees live and work, funding promising convalescent blood therapies and drug trials. And we have made an additional contribution to our own Call of Duty Endowment to continue placing veterans into high-quality jobs.
The increasingly digital, recurring and cash-generative nature of our operations remains one of our fundamental strengths. With a strong balance sheet, low capital intensity and a track record of disciplined capital allocation, we have substantial flexibility as we navigate through an uncertain environment.
Company Outlook
Our business exhibited accelerating momentum entering the second quarter from the dual tailwinds of strong execution in the Call of Duty franchise following last year’s increased investment, and increased engagement as people turned to our interactive content as they sheltered at home. The full extent of the impact of the COVID-19 pandemic on our business, operations, and financial results will depend on numerous evolving factors that we are not able to fully predict at this time. While there are risks related to global economic weakness, rising unemployment, pressures on the retail channel, pricing and other potential factors, we also see many positive opportunities for our operating performance this year, including the potential for continued heightened engagement in our content well beyond the second quarter. We have aimed to be prudent in our guidance to account for these effects, and we believe there is potential for overperformance if these risks do not materialize.
Regarding product development, the majority of our employees are currently working from home, which while adding complexity to some areas of the game development process, has not currently changed our plans for our key content releases this year.
Since we provided our initial guidance in February, the strengthening dollar has resulted in an additional FX headwind to full year net bookings of approximately $100 million. Further, the strengthening dollar and lower interest income from the current interest rate environment represent an additional headwind to full-year GAAP and non-GAAP EPS of approximately $0.08 versus our prior outlook. Nonetheless, with strong momentum across the business we are raising our outlook for net revenues and EPS for the year, more than passing through the Q1 earnings outperformance despite these headwinds.
Our business exhibited accelerating momentum entering the second quarter from the dual tailwinds of strong execution in the Call of Duty franchise following last year’s increased investment, and increased engagement as people turned to our interactive content as they sheltered at home. The full extent of the impact of the COVID-19 pandemic on our business, operations, and financial results will depend on numerous evolving factors that we are not able to fully predict at this time. While there are risks related to global economic weakness, rising unemployment, pressures on the retail channel, pricing and other potential factors, we also see many positive opportunities for our operating performance this year, including the potential for continued heightened engagement in our content well beyond the second quarter. We have aimed to be prudent in our guidance to account for these effects, and we believe there is potential for overperformance if these risks do not materialize.
Regarding product development, the majority of our employees are currently working from home, which while adding complexity to some areas of the game development process, has not currently changed our plans for our key content releases this year.
Since we provided our initial guidance in February, the strengthening dollar has resulted in an additional FX headwind to full year net bookings of approximately $100 million. Further, the strengthening dollar and lower interest income from the current interest rate environment represent an additional headwind to full-year GAAP and non-GAAP EPS of approximately $0.08 versus our prior outlook. Nonetheless, with strong momentum across the business we are raising our outlook for net revenues and EPS for the year, more than passing through the Q1 earnings outperformance despite these headwinds.
Activision Blizzard's (NASDAQ: ATVI) stock price history
The image below, obtained from Google shows the stock price history of Activision Blizzard over the last 5 years. And while its been a mostly upward trend in the stock price of the group there was a significant decline towards the end of 2018, largely brought on by China delaying the release of new games in their markets. 5 years ago the stock of Activision Blizzard was trading at around $25 a stock and its currently trading at $68.53. That's a very healthy return of 174.1% provided to Activision Blizzard stockholders over the last 5 years.
The stock of Activision Blizzard is trading at closer to its 52 week high of $69.63 than it is to its 52 week low of $41.84 which to us is an indication that the short term sentiment and momentum of Activision Blizzard's stock is very positive at this point in time
The stock of Activision Blizzard is trading at closer to its 52 week high of $69.63 than it is to its 52 week low of $41.84 which to us is an indication that the short term sentiment and momentum of Activision Blizzard's stock is very positive at this point in time
Recent Google search trends for Activision Blizzard stock price and ATVI stock price
The graphic below shows Google search trends for Activision Blizzard stock price and ATVI stock price over the last 12 months in the United States as obtained from Google Trends. Guess if you are looking for more details regarding Activision Blizzard's stock price you are better off searching for ATVI stock price as it seems this search query is far more popular than that Activision Blizzard stock price
Recent coverage of Activision Blizzard
The extract below covers the latest earnings report of Activision Blizzard as obtained from Barrons.com
Activision Blizzard shares jumped to its highest levels since 2018 after the videogame publisher’s first-quarter results crushed expectations. The company reported adjusted earnings of 76 cents a share topping Wall Street’s consensus estimate that called for 38 cents per share. Net bookings of $1.52 billion beat consensus at $1.3 billion.
It noted increased engagement as folks at home turned to its games while sheltering to slow the spread of Covid-19. Such trends continued into the second quarter, while business momentum accelerated in April, the company said. Amid the market’s recent rally, Activision Blizzard stock (ticker: ATVI) touched a new 52-week high . Analysts noted Covid-19 stay-at-home orders would help boost gaming engagement —at least for now. Activision in mid-March launched Call of Duty: Warzone, a free-to-play battle-royale shooting game that sells in-game cosmetic items. It’s already hit 60 million players, the company said.
Though the subscription-based World of Warcraft game doubled its active community in 2019--mostly related to the August release of World of Warcraft: Classic—the game continued to see growth in active players during the first-quarter of 2020. The company reported an increase in engagement for a number of its other online games, including Hearthstone, Overwatch, and Call of Duty: Mobile. While risks like global economic weakness, rising unemployment, pressures on the retail channel, pricing and other factors could impact results, the company sees the potential for heightened engagement well beyond the second quarter. “We have aimed to be prudent in our guidance to account for these effects, and we believe there is potential for overperformance if these risks do not materialize,” the company said.
Read the full article here
Activision Blizzard shares jumped to its highest levels since 2018 after the videogame publisher’s first-quarter results crushed expectations. The company reported adjusted earnings of 76 cents a share topping Wall Street’s consensus estimate that called for 38 cents per share. Net bookings of $1.52 billion beat consensus at $1.3 billion.
It noted increased engagement as folks at home turned to its games while sheltering to slow the spread of Covid-19. Such trends continued into the second quarter, while business momentum accelerated in April, the company said. Amid the market’s recent rally, Activision Blizzard stock (ticker: ATVI) touched a new 52-week high . Analysts noted Covid-19 stay-at-home orders would help boost gaming engagement —at least for now. Activision in mid-March launched Call of Duty: Warzone, a free-to-play battle-royale shooting game that sells in-game cosmetic items. It’s already hit 60 million players, the company said.
Though the subscription-based World of Warcraft game doubled its active community in 2019--mostly related to the August release of World of Warcraft: Classic—the game continued to see growth in active players during the first-quarter of 2020. The company reported an increase in engagement for a number of its other online games, including Hearthstone, Overwatch, and Call of Duty: Mobile. While risks like global economic weakness, rising unemployment, pressures on the retail channel, pricing and other factors could impact results, the company sees the potential for heightened engagement well beyond the second quarter. “We have aimed to be prudent in our guidance to account for these effects, and we believe there is potential for overperformance if these risks do not materialize,” the company said.
Read the full article here
Activision Blizzard's (NASDAQ: ATVI) latest stock valuation
Based on Activision Blizzard's latest earnings report and the fiscal guidance what do we value the group's stock at? Based on reported earnings and the fiscal guidance provided our valuation models provides a target (full value) price for Activision Blizzard of $56.20 (up from our 4th quarter 2019 earnings report valuation of Activision Blizzard). We therefore believe the stock of Activision Blizzard is overvalued.
We usually recommend that long term fundamental or value investors enter a stock at least 10% below our target (full value) price which in this case is $56.20. We therefore believe a good entry point into Activision Blizzard stock is at $50.60 or below. We expect the stock of Activision to pull back from its current levels to levels closer to our target price (full value price) in coming weeks and months.
We usually recommend that long term fundamental or value investors enter a stock at least 10% below our target (full value) price which in this case is $56.20. We therefore believe a good entry point into Activision Blizzard stock is at $50.60 or below. We expect the stock of Activision to pull back from its current levels to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of Activision Blizzard
It is expected that Activision Blizzard's 2nd quarter 2020 earnings report will be released in early August 2020