'Candy Crush' Boosts Activision Blizzard, But The Market's Not Playing Along

Perhaps downtime and boredom are increasing: lots of people were playing "Candy Crush" on their phones in recent months. That’s good for the game’s maker, Activision Blizzard, Inc. ATVI, which otherwise has had a rough start to the year, including a major layoff announcement and declining revenue.

ATVI reported a stronger-than-expected first quarter, with $1.3 billion in bookings that surpassed expectations, and EPS of 31 cents, beating the Street’s estimate of 23 cents.

A big part of that upside came from the King Mobile division’s "Candy Crush," which saw a 2-percent increase in active users driven by “Candy Crush Saga” and the new “Candy Crush Friends.”

But Activision’s overall net revenue in the first quarter was down from the same quarter last year, and the company also laid off more than 700 employees during the period.

The stock was sliding Friday. But the sell-side reaction to Activision’s results was, like the results themselves, mixed. Most analysts continue to recommend the stock, with hopes for new games in the pipeline, but a few sounded a cautionary note on legacy franchises. 

The Analysts

Wedbush analyst Michael Pachter reiterated an Outperform rating and $56 price target.

Credit Suisse analyst Stephen Ju maintained an Outperform rating and $65 price target. 

Morgan Stanley’s Brian Nowak maintained an Overweight on ATVI and lowering the price target from $55 to $53.

Stifel’s Drew Crum maintained a Buy rating with a $53 price target.

BMO Capital Markets analyst Gerrick Johnson maintained a Market Perform rating and $40 target price.

The Takeaways

While noting the strong growth of "Candy Crush," several analysts are keenly interested in what’s on the horizon. 

Credit Suisse’s Ju, who said Blizzard has a “rich pipeline,” said in a Friday note that the cross-platform projects in the works and the company’s ongoing search for ways to monetize games foreshadow higher upside potential in 2020 and beyond.

Wedbush's Pachter agreed.

“We are confident that new games are in the pipeline, including a 'Warcraft' mobile title, a new Diablo PC game, a 'World of Warcraft' expansion pack, and a new 'StarCraft' game, and we think Activision shares will once again begin to appreciate when management acknowledges it is working on these and other titles,” the analyst said. 

BMO’s Johnson isn’t as convinced, calling the pipeline “limited.” That could be a problem given how he sees the company’s legacy offerings.

“The company’s core franchises have grown stale, and near-term benefits from digitization appear played out,” the analyst said. 

Other Analyst Highlights 

Morgan Stanley’s Nowak: “Successful new game launches (mobile/free-to-play options) will be important to turn the investor narrative, but we remain positive on the long-term opportunities ahead.”

Stifel’s Crum: “We continue to view '19 as the trough year and are encouraged by the company's restructuring plan that should drive increased content output going forward.”

Wedbush’s Pachter: “The games market is growing and is positioned to grow dramatically once the tech giants roll out new game streaming initiatives. We think that new streaming initiatives will expand the market for high quality content exponentially.”

Price Action

Activision Blizzard shares were down 3.29 percent at $47.92 at the time of publication Friday. 

Related Links:

Activison Blizzard Misses Q4 Sales Estimates, Announces Layoffs

Morgan Stanley: Activision Blizzard Has Multiple Catalysts In 2019

Photo courtesy of King Mobile.