Where Will Activision Blizzard Go Next?

With shares of Activision Blizzard (NASDAQ:ATVI) trading around $17, 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. It also creates real-time strategy, role-playing PC games, and online subscription-based games in the multi-player online role-playing category, as well as distributes interactive entertainment software and hardware products. Online gaming is becoming increasingly popular — as a company at the root of this growing industry, Activision Blizzard stands to see significant gains.

Activision Blizzard is buying itself back from French media company Vivendi, repurchasing 429 million shares for $5.83 billion. Activision Blizzard is responsible for popular video game titles, like Call of Duty and World of Warcraft. The buyout comes in advance of the release of Sony’s (NYSE:SNE) PlayStation 4 and Microsoft’s (NASDAQ:MSFT) Xbox One.

T = Technicals on the Stock Chart are Strong

Activision Blizzard stock has seen a consistent uptrend over the last several months. The stock is now trading at highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 signals neutral to 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

33.66%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates, and what this means for Activision Blizzard’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

21.21%

300.00%

53.85%

-44.83%

Revenue Growth (Y-O-Y)

12.97%

25.66%

11.54%

-6.20%

Earnings Reaction

-5.70%

11.19%

-1.16%

-5.52%

Activision Blizzard has seen rising earnings and revenue figures over the last four quarters. From these numbers, it seems the markets have expected more from Activision Blizzard’s recent earnings announcements.

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 the overall sector?

Activision Blizzard

Electronic Arts

Sony

Zynga

Sector

Year-to-Date Return

62.71%

76.52%

92.41%

23.73%

42.71%

Activision Blizzard has been an average relative performer, year-to-date.

Conclusion

Activision Blizzard provides online entertainment products and services to a growing group of people worldwide. The company is now attempting to repurchase itself from its French owner. The stock has been on a strong surge higher in recent months, and is now trading near highs for the year. Over the last four quarters, it seems investors in the company have expected more, but earnings and revenue figures have been rising. Relative to its peers and sector, Activision Blizzard has been an average year-to-date performer. Look for Activision Blizzard to OUTPERFORM.

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