What To Expect From Activision Blizzard’s Q3?

Activision Blizzard (NASDAQ: ATVI) is scheduled to report its Q3 2021 results on Tuesday, November 2. We expect the company to likely post revenue and earnings above the consensus estimates, primarily led by continued growth in the Call of Duty as well as World of Warcraft franchises. That said, the company saw a y-o-y decline in monthly active users (MAUs) in Q2, given a tough comparison to the prior year, which benefited from the lockdowns. This trend may continue in the near term, as economies open up gradually, but overall MAUs are expected to remain well above the pre-pandemic levels.

Not only do we expect the company to post upbeat results, our forecast indicates that Activision Blizzard’s ATVI valuation is $110 per share, which reflects a large 36% premium to the current market price of around $81, implying that the stock is undervalued at its current levels. Our interactive dashboard analysis on Activision Blizzard Pre-Earnings has additional details.

(1) Revenues expected to be slightly above the consensus estimates

Trefis estimates Activision Blizzard’s Q3 2021 revenues to be around $1.92 billion, slightly above the $1.88 billion consensus estimate. Despite the economies opening up with vaccination programs underway in multiple countries, the user engagement levels for gaming has remained on the higher side, aiding Activision Blizzard’s sales over the recent quarters. The company reported revenues of $2.3 billion in Q2 2021, up 19% y-o-y, and it has guided for $1.85 billion revenues in Q3. Our dashboard on Activision Blizzard Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

Activision Blizzard’s Q3 2021 adjusted earnings per share is expected to be $0.72 per Trefis analysis, slightly above the consensus estimate of $0.70. The company’s adjusted net income of $941 million in Q2 2021 reflected a solid 49% rise from its $631 million figure in the prior-year quarter, led by higher revenues and margin expansion. For the full year 2021, we expect the adjusted EPS to be higher at $3.85 compared to $3.21 in 2020. The company has reduced its sales and marketing costs over the recent past, and we expect this trend to continue in the near term.

(3) Stock price estimate much higher than the current market price

Going by our Activision Blizzard’s Valuation, with an EPS estimate of $3.85 and a P/E multiple of 29x in 2021, this translates into a price of $110, which is roughly 36% above the current market price of around $81. In fact, at the current market price of $81, ATVI stock is trading at just 21x its 2021 EPS estimate of $3.85. The 21x figure compares with levels of over 26x seen in 2019 and a 29x figure seen as recently as late 2020, implying that ATVI stock is currently undervalued.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.

While ATVI stock can see higher levels, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for IAC vs. Activision Blizzard.

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