Market Likes Activision's Move To Hit Restart On Game Business

Shares of Activision Blizzard Inc. ATVI were trading higher Wednesday following the game developer's announcement that it’s hitting the reset button with staff layoffs and restructuring. 

The company known for the “Call of Duty” franchise said it's reduced its staff by 8 percent and will refocus its efforts on core games.

The bullishness may be surprising given the company’s outlook for softer sales in the coming year. Activision released mixed fourth-quarter earnings on Tuesday, in-line on earnings per share but with a big miss on Q4 revenue and weak 2019 guidance. 

But acknowledgement of the problems and a move to reset is what Wall Street wanted to see, Matthew Thornton, director of equity research at Suntrust Robinson Humphrey, said in a CNBC appearance.

“We finally have some certainty around those numbers. At least the numbers are de-risked and we can move forward from here,” said Thornton, who has a Buy rating on the stock.

The Analysts

• Bank of America Merrill Lynch’s Justin Post reiterated a Neutral on Activision Blizzard and lowered the price objective from $58 to $54.
• SunTrust Robinson Humphrey's Thornton has a Buy rating on Activision. 
• UBS Securities analyst Eric Sheridan maintained a Buy rating and lowered the price target from $56 to $52. 
• Wedbush’s Michael Pachter maintained an Outperform on Activision and lowered the price target from $64 to $56. 

BofA 

While it’s clear 2019 will be the reset year stock watchers were expecting, BofA sees Activision’s 2019 revenue outlook as conservative, Post said in a note. The layoffs and restructuring could help by freeing up resources for game development and driving more frequent releases, the analyst said. 

SunTrust

“Expectations were pretty low coming into this quarter,” Thornton said. “We knew we were going to get a fairly tepid Q4 report [and] a fairly tepid 2019 outlook, as it’s a transition year and they really don’t have much in the way of new game releases for the year.”

Yet the certainty about what the company expects and how it intends to move forward is a good sign, the analyst said. 

UBS

Rather than trying to merely talk about good news, Activision management clearly laid out a plan for investing in future drivers in the video game industry, finding efficiencies and getting back on track, Sheridan said.

This should give investors higher confidence, the analyst said.

Wedbush

Activision posted a bad Q4 revenue miss, Pachter said, coming in at $2.8 billion against estimates that were over $3 billion because of lighter-than-expected sales of “Call of Duty: Black Ops 4.”

Earnings held up because of lower-than-expected costs and taxes, the analyst said. On the soft guidance, Pachter said the the restructuring is a positive and added that Wedbush views the company’s 2019 guidance as conservative. 

Price Action

Shares of Activision Blizzard were up 4.6 percent at $43.58 at the time of publication Wednesday.

Related Links:

Activison Blizzard Misses Q4 Sales Estimates, Announces Layoffs

Morgan Stanley: Activision Blizzard Has Multiple Catalysts In 2019