4 Views On How To Play Activision Blizzard Post-Earnings

Shares of Activision Blizzard, Inc. ATVI hit a new all-time high of $67.03 Friday morning before returning all of the daily gains and then losing an additional 4.5 percent in reaction to the company's third quarter earnings report. Here is a summary of what some of Wall Street's top analysts are saying after the print.

Buckingham Research: Firing On All Cylinders

The Buckingham Research Group's Scott Krasik maintains a Buy rating on Activision's stock with an unchanged $79 price target.

Activision's status as the "best managed and the best positioned" company to benefit from industry-wide favorable dynamics remains unchanged after the earnings report, the analyst said. A shift toward online distribution, fewer bigger games, and in-game content delivery are all "game changers" for the industry, Krasik said. 

The earnings report shows that Activision is "firing on all cylinders," led by its notable franchises, including "Destiny 2" with high expectations for "Call of Duty WWII," Krasik said. King's "Candy Crush" game is once again the top-rated game on app stores, according to Buckingham.

"ATVI should be trading at or close to a peak multiple in a period in which it is experiencing favorable dynamics within an industry that will see improving revenue visibility and expanding margins," Krasik said. 

William Blair: Another Strong Quarter

William Blair's Ralph Schackart maintains an Outperform on Activision with no price target.

Activision's earnings report showed that all business segments came in better than expected and management boosted its full-year guidance, the analyst said. The stock has already gained more than 80 percent since the start of 2017, which implies investors already have high expectations, Shackart said. 

At around $67 per share, the stock is trading at a valuation of roughly 28 times the analyst's 2018 non-GAAP EPS which is a multiple at the high end of its historical range. But there is still room for further upside ahead, as the company is positioned to boost its revenue, expand margins and succeed in new initiatives ahead, Shackhart said. 

Jefferies: Top Pick

Jefferies' Timothy O'Shea maintains a Buy rating on Activision's stock with a price target boost from $80 to $82.

Activision's earnings report showed that its core business is evolving into a recurring and predictable model that also happens to be more profitable, O'Shea said. But the company may be in its early stages, given that it has 384 million users who are deeply engaged by playing 50 minutes per day, he said.

The upside to current estimates can be achieved as the company focuses on four new businesses, O'Shea said: mobile games, advertising, consumer products, and eSports. In fact, each of the four segments represents a "meaningful opportunity" for higher margins than the core business, according to Jefferies. 

UBS: Gaming As A Service

UBS' Eric Sheridan maintains a Buy rating on Activision's stock with a price target raised from $72 to $75.

Activision's earnings report offered investors more evidence of outperformance across both new and legacy titles, given a better-than-expected revenue figure and incremental digital full game downloads, Sheridan said. The company's profitability came in ahead of expectations, with plenty of signs suggesting this will be sustainable, the analyst said. 

Activision boasts multiyear runway ahead in which the gaming industry will shift to a GaaS model — gaming as a service, according to UBS. This relatively new concept implies longer engagement with key franchises, increased monetization and higher free cash flow conversion.

Looking forward to 2017 and beyond, it's "likely" Activision will be able to sustain mobile revenue growth, as the entire mobile gaming sector could grow at a compounded annual growth rate of 14 percent through 2018, Sheridan said. There's the potential for investors to be rewarded with higher cash returns as the company returns to a stable debt load, the analyst said. 

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