Activision Blizzard Receives Analyst Upgrade

Activision Blizzard (NASDAQ:ATVI) has seen several analysts upgrade ratings on the company’s shares after the release of World of Warcraft Classic, a massively multiplayer online role-playing game.

On Monday (September 9), Stifel analyst Drew Crum increased his price target from US$58 to US$65. Crum expects that the company will report improved earnings into 2020. Despite Activision’s damped performance in 2019, Crum anticipates the company’s earnings per share (EPS) will reach US$2.58 next year. By comparison, average price targets for Activision Blizzard are US$55 with an anticipated US$2.19 in EPS.

Similarly, Stephens analyst Jeff Cohen boosted his price target to US$65, a US$13 increase in price on September 5.

“We believe 2019 numbers are now de-risked due to the successful launch of World of Warcraft Classic and the announcement of a Nintendo (NASDAQ:NTDOY) Switch port for Overwatch (launching October 15),” Cohen said in a note.

Earlier that week, analyst Gerrick Johnson from BMO (TSX:BMO) Capital Markets moved Activision’s price target by US$17 to US$60. Listing the company as “outperform,” Johnson estimated that subscription revenues from World of Warcraft, which cost US$15 per month, will result in US$90 million in incremental net bookings in 2019.

With players waiting for hours on queue to play World of Warcraft Classic — and servers unable to meet the demand — Johnson increased his subscription estimate from five million to a total of seven million players for the fourth quarter.

Central to World of Warcraft Classic is the nostalgia for players who were playing the game when it launched 15 years ago. “Cross-generational appeal is a strong motivating factor for game purchase and ATVI has had success with remastering classic games like Crash Bandicoot, Spyro, and Call of Duty Modern Warfare (packaged with 2017’s Call of Duty: Infinite Warfare),” Johnson told Barron’s.

With the remastered release of World of Warcraft showing signs of momentum towards the end of 2019, Activision also plans to release another remaster of a blockbuster game, Warcraft 3, by the end of 2019.

Along with Warcraft 3, the company is also anticipated to release the new game Call of Duty Modern Warfare, a reboot of the classic Call of Duty franchise, in addition to installments in its Overwatch and Diablo franchises.

As Activision expands its releases, Johnson notes two other primary drivers behind why he believes Activision’s shares will show promising results into the future. First, he said that in addition to the release of World of Warcraft Classic and other remastered games, its Hearthstone division is presenting strong engagement levels.

“The fourth quarter we saw signs of stabilization and in the first quarter of 2019 the Rise of Shadows expansion resonated well with the community,” said Johnson.

He also noted that the company has undergone some restructuring, resulting in the letting go of 800 employees, or 8 percent of its workforce, to refocus savings on esports and advertising.

Shares of Activision Blizzard opened at US$54.74, climbing to US$56.03 at market close on Tuesday (September 10). Year-to-date, shares have increased over 17 percent.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.