New Trade for February 26th, 2021

What a week this has been.  Every sector finished lower in the previous session.  As of yesterday’s close The Nasdaq Composite has tumbled more than 5.5% for the week.  Ouch.  Will today, the final trading day of the week, bring a recovery of some of those losses?  Or will stocks tumble further to close the week even lower?  It’s anybody’s guess.  

Investors who are of the same school of thought as JPMorgan Chase strategist Marko Kolanovic may be scouting for stocks that have been pulled down to attractive buying levels.  In a note published yesterday he stated, The spread between the Cboe Volatility Index, or VIX, and two-week S&P 500 realized volatility has widened to a point that historically has been followed by a volatility decline and stocks on average moving higher.”

If you also believe that the ‘VIX bubble’ may spark another rally then you don’t want to miss today’s trade alert.  

Video games have come a long way since the first games emerged in the 1970s.  Today’s video games offer photorealistic graphics and simulate reality to a degree which is astonishing in many cases.  A report from Statista said that: “In 2020, the revenue from the worldwide PC gaming market was estimated at almost 37 billion U.S. dollars , while the mobile gaming market generated an estimated income of over 77 billion U.S. dollars (a $114 Billion total).”

What is significant nowadays is that the first generation of gamers is now grown up and has significant spending power at its disposal.

A report from Grand View Research said that: “The global video game market size was valued at USD 151.06 billion in 2019 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 12.9% from 2020 to 2027. Technological proliferation and innovation in both hardware and software are expected to be the key factors driving the growth. The growing penetration of internet services coupled with the easy availability and access of games on the internet across the globe is also expected to keep the market growth prospects upbeat in the forthcoming years. Game developers are also constantly improvising and pushing the technological limits regarding the real-time rendering of graphics in the video game industry, which is further expected to propel the growth.” 

Activision Blizzard (ATVI) is a clear leader in the group.  In terms of one-year and year-to-date performance, ATVI stock leads both of its major peers, Take-Two Interactive Software (TTWO) and Electronic Arts (EA).

Activision was already enjoying solid secular growth before covid-19 came along.  Then, as a result of coronavirus, the video game maker has seen a spike in engagement and in demand due to the stay-at-home nature of the world.  While kids and gamers got back outside in the summer, colder weather will soon shudder most of those activities in some places.  Just take a look at fourth quarter 2020 results.

For the year ended December 31, 2020, Activision Blizzard‘s net revenues presented in accordance with GAAP were $8.09 billion, as compared with $6.49 billion for 2019.  GAAP net revenues from digital channels were $6.66 billion.  GAAP operating margin was 34%.  GAAP earnings per diluted share were $2.82, as compared with $1.95 for 2019.  On a non-GAAP basis, Activision Blizzard‘s operating margin was 39% and earnings per diluted share were $3.21, as compared with $2.31 for 2019.

Bobby Kotick , CEO of Activision Blizzard said during the call,  “In a year filled with adversity our extraordinary employees were determined to provide connection and joy to our 400 million players around the world.”  He then stated, “They accomplished this as well as generating record financial results for our shareholders.  Under difficult circumstances, but with the same conviction and focus, they will continue to do so in 2021.”

Share prices of ATVI dropped sharply after reaching a high of $104 earlier this month. Coincidently, the game producer held its annual BlizzCon event on Feb. 19-20 to discuss the latest developments with Blizzard titles.  Some investors anticipated hearing new updates at BlizzCon about the development of Diablo 4 and Overwatch 2, especially some kind of release timeline.  But no release dates were issued for these titles, which means these titles are coming in 2022 at the earliest, and perhaps not until 2023.  That’s something for patient ATVI investors to look forward to. 

For the most part the pros agree that ATVI share price will gain.  Of 34 analysts offering recommendations for the stocks, 28 rate the stock a Buy.  There are also 5 Hold ratings for ATVI and 1 Sell rating.  Of course a continuation of this week’s tech slide may bring an even more attractive entry into ATVI stock, so it’s one to keep on the radar. 

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