Activision Blizzard (NASDAQ: ATVI)
The stock hasn’t gotten much attention since its Aug. 1 earnings report.
On the one hand, given that Microsoft has proposed a $68.7 billion Buying the gaming software and console maker for $95 per share, this lack of action isn’t particularly surprising. As Activision did in January, the stock often trades higher in takeover bids.
On the other hand, there’s still a big gap between Activision’s current price and Microsoft’s offer. Activision shares traded between $80 and $81. That’s basically where they’ve been range bound for the past few weeks.
This is where the uncertainty of the Microsoft deal comes into play: The acquisition is under scrutiny from antitrust regulators, not just in the U.S. but globally. While the market awaits multiple approvals, the stock is trading well below its magic price of $95.
This means that investors may have the opportunity to take advantage of the difference between quoted prices and current prices. If the deal goes through, it could yield big returns for investors. But there’s still a risk that the takeover might not get approval, which would lead to lower prices, at least for a while.
However, industry-wide, there are signs of trouble as revenue is slowing, driven by the pandemic era. When people are looking for entertainment at home, video games fit the bill. Almost everyone walking around outside these days? The game has lost some of its luster.
In addition, component makers are suffering from supply chain slowdowns, which are limiting revenue.
Activision earned $0.48 per share in its most recent quarter, down 60% year over year. This is quite important. Revenue was $1.644 billion, down 28%. After two quarters of decelerating sales, sales fell year-over-year in the past three quarters.
Looking back, it’s now clear that revenue growth peaked in the quarter ended December 2020, when a vaccine became widely available and more people started venturing out of their homes again.
underperformed the S&P 500
Video Game CompetitorElectronic Arts (NASDAQ: EA) at outperformed in earnings and revenue growth, but its stock underperformed the S&P 500 by a larger margin than Activision.
In the most recent quarter, EA earned $0.47 per share on revenue of $1.767 billion, up 688% and 14%, respectively. The company guided for an adjusted EPS of $1.30 for the quarter on revenue of $1.75 billion, missing Wall Street expectations of $1.46 a share on sales of $1.84 billion. EA’s full-year guidance was also below analysts’ views.
However, despite lower-than-expected guidance, the stock has risen 3.7% since reporting earnings. It has oscillated around its 50-day moving average in recent weeks, before pulling back after breaking above resistance at $134.92 on Tuesday. Whether it can decisively surpass this level and sustain the rally remains to be seen.
Roblox Total User Decline
Roblox (NYSE: RBLX), another big gaming company, has been profitable for years After reporting losses again in 2020 and 2021. The stock has traded slightly higher since reporting quarterly results last week.
While the company said the number of daily users was up year-over-year, there was some bad news: The total number of users was down compared to the previous quarter.
The stock is down 52.54% so far this year, despite a 23.11% gain over the past month.
According to MarketBeat analyst data, the stock has a consensus rating of “hold” and a price target of $44.94, down 5.69%.
The stock sparked excitement among investors and traders when it went public in March 2021, as influential investors like Ark Investment Management’s Cathie Woods bought the stock. In fact, as recently as August 10, Ark noted in its trade alert that it had purchased 147,455 Roblox shares for the ARK Innovation ETF (NYSEARCA: ARKK) .
While institutions are clearly adding stocks, as we’ve seen in the recent rally in gaming stocks like EA and Roblox, look at the growth prospects before deciding to get involved. That’s true for any stock in any sector, but it’s especially important right now for sectors where sales are slumping or even issuing guidance that’s lower than Wall Street’s expectations.