Can Activision Blizzard See Higher Prices?

With shares of Activision Blizzard (NASDAQ:ATVI) trading around $14, is ATVI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Activision Blizzard is a worldwide publisher of online, personal computer, console, handheld, and mobile interactive entertainment products. The company operates in three segments: Activision Publishing, Inc., Blizzard Entertainment, Inc.,  and Activision Blizzard Distribution. Through its segments, it publishes interactive entertainment software products and downloadable content; real-time strategy, role-playing PC games and online subscription-based games in the multiplayer online role-playing game category; and distributes interactive entertainment software and hardware products. Online gaming is becoming increasingly popular so a company at the root of it, Activision Blizzard, stands to see significant gains.

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T = Technicals on the Stock Chart are Strong

Over the last decade or so, Activision Blizzard saw a significant rise in its stock price and a subsequent consolidation. At this time, the stock seems set to break above this consolidation and explore higher prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Activision Blizzard is trading above its rising key averages which signal bullish price action in the near-term.

ATVI

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Activision Blizzard options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Activision Blizzard Options

36.07%

90%

87%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Activision Blizzard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Activision Blizzard look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

300%

53.85%

-44.83%

-21.43%

Revenue Growth (Y-O-Y)

25.75%

11.54%

-6.46%

-19.12%

Earnings Reaction

11.19%

-1.16%

-5.52%

2.74%

Activision Blizzard has seen a rise in earnings and revenue over the last two quarters. From these figures, the markets have been pleased with Activision Blizzard’s earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has Activision Blizzard stock done relative to its peers, Electronic Arts (NASDAQ:EA), Sony (NYSE:SNE), Zynga (NASDAQ:ZNGA), and sector?

Activision Blizzard

Electronic Arts

Sony

Zynga

Sector

Year-to-Date Return

33.03%

19.47%

45.27%

44.77%

9.31%

Activision Blizzard has been a great performer in a strong industry, year-to-date.

Conclusion

Activision Blizzard provides online entertainment products and services to a growing group of people across the globe. The stock is setting up for a price move higher on support from recent excellent earnings and revenue growth. The industry as a whole is performing extremely well, year-to-date, and Activision Blizzard has been an average relative performer. Look for Activision Blizzard to continue to OUTPERFORM.

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