Like other tech stocks, Activision Blizzard (NASDAQ:ATVI) has gotten caught up in a wave of selling. Thankfully ATVI stock isn’t getting smashed like high-growth stocks, but it’s still down more than 11% from its 52-week high and fell about 15% at its recent low.
For long-term bulls though, perhaps a larger decline would have been advantageous. After all, the stock has had a nice run and getting Activision on a deeper discount only sweetens the deal down the road.
Still, seeing some relative strength vs. other growth stocks is nice and with a double-digit dip from the highs, investors are in a position to nibble on this decline.
Secular Growth in Gaming
The first reason we want to be a buyer of ATVI stock is the most obvious: There’s secular growth in gaming.
It’s not a thing of the 90s and it’s not a fad. Streaming and the cloud aren’t hurting game-makers — they’re accelerating their growth. As momentum grows in Twitch, Discord and other streaming platforms, gamers are enjoying more popularity than ever.
Before the novel coronavirus, e-sports tournaments were packing stadiums full of fans as they watched the best of the best duel it out in their favorite games.
Like the secular growth we’re seeing in semiconductors, multiple catalysts are coming together to fan the flames in gaming. The cloud, streaming, e-sports, tournaments and improving technology continues to drive momentum in gaming and that won’t change anytime soon.
While the gaming industry was well-insulated against the impact of Covid-19, it was enjoying steady growth before the pandemic. Don’t expect that growth to vanish once the pandemic is over.
Activision Blizzard Has Momentum
Revenue estimates call for 1.3% growth this year.
Wait, I thought the subheading says “Activision Blizzard has momentum?”
It does, even though that revenue figure doesn’t make it seem so. However, when we look back at 2020, we see how robust the growth was. Overall revenue jumped 24%, but it includes a quarter of 72% growth (Q2) and a quarter of 45.5% growth (Q3).
One could argue that Activision Blizzard has waning momentum, and on a sequential basis, that’s true. It actually does. And on a year-over-year basis, Activision Blizzard won’t be able to match those massive growth spurts of Q2 and Q3.
However, to comp the entire year with growth — modest as it may be — is a wildly impressive feat. The stock price may consolidate rather than surge as a result, but that just gives investors a chance to accumulate ATVI stock.
On the plus side, consensus estimates call for more than 5% earnings growth, so the bottom line is expanding more quickly.
However, we’re taking a longer-term view with this company. For example, forecasts call for 13.5% revenue growth in 2022, alongside 17% earnings growth. Those are great numbers. Additionally, one could argue that forecasts for 2021 may even be conservative. If we see the GDP boost that economists expect this year, perhaps consumer spending will be stronger than expected.
Beyond that and before Covid-19, the CEO believes the company will grow its user base from 350 million gamers to more than 1 billion by 2025. How so?
Activision Blizzard is a multi-dimensional company. Its success doesn’t hinge on any one game or product. Instead, it has console gaming, but it also has mobile gaming to help drive growth. With multiple catalysts in play, ATVI stock has long-term potential.
Bottom Line on ATVI Stock
Admittedly, ATVI stock is somewhat lacking when it comes to a short-term catalyst. It faces tough comps later in the year and its revenue growth looks stagnant, (but isn’t in my opinion).
Again, I prefer the more bullish takeaway, which is to be impressed by the company keeping pace (and slightly surpassing) its robust year of 2020. With long-term catalysts in play, Activision’s best days are clearly ahead of it, not behind it.
Gaming is in a secular growth trend and because of how management has positioned this company, Activision is also enjoying its ride among this secular growth wave.
Another impressive observation? Just how well ATVI stock is holding up amid this slump in tech. The Nasdaq fell about 10% at its recent low, while many high-quality, high-growth stocks have slumped 35% to 50% from the 2021 highs.
It’s possible that ATVI stock dips down to its 200-day moving average. However, I like the idea of accumulating this name throughout 2021. It will only set up investors for a strong performance down the road.
Back over $95 and this name could fill the gap up near $100.50.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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