How much is Activision worth?
A Video Game Titan
If you were born in the 90s, you’ve probably heard of the blockbuster game World of Warcraft. The MMORPG quickly became a commercial hit upon its release in 2004, and by 2006, it generated more than $68 million for Blizzard. In just a few years, WoW became the most popular game of its genre, and more than 100 million accounts have been created since then.
However, the game’s active population has fallen to less than 5 million, and Activision Blizzard has felt the impact on its revenue. To bring back the older player base, Activision Blizzard launched WoW Classic in 2019, which is a separate version of the main game and allows players to play the same WoW released in 2004.
In the summer of 2021, Activision Blizzard was caught up in many sexual misconduct allegations, and demands for CEO Bobby Kotick to resign were made due to his previous inaction. As a result, ATVI’s share price fell dramatically. From $99 per share to as low as $57 per share in December 2021. ATVI started to trade at 14.1x EV/EBITDA multiples, a significant discount from its 5-year average of 20x. This was an overreaction by investors to Activision Blizzard.
The company still maintains a loyal customer base of 400 million.
A customer base stretching across various platforms, with the most prominent being mobile through King. While Activision Blizzard’s market cap fell by about $8 billion, it is still competitive among the top 5 companies in the video games industry, and now, it is trading at an EV/EBITDA multiple of roughly 15.8x, indicating its recovery and rebound.
In addition, Microsoft’s recent announcement to acquire Activision Blizzard at a whopping $95 per share in an all-cash transaction worth $68.7 billion indicates the tech giant’s confidence in the growth of the video games industry in the coming years. Microsoft will generate the third-largest revenue amongst video games companies when the transaction closes, just behind Tencent and Sony. The acquisition will include popular franchises such as Warcraft, Diablo, Overwatch, Call of Duty, and Candy Crush, with Goldman Sachs & Co. advising the transaction. The Chair and Founder of the University of South California’s Computer Games Department, Mike Zyda told Rebellion:
“While the acquisition of ATVI by Microsoft has great potential, this acquisition must be completed faster to stem the stream of talent out of ATVI.” At the 2010 DICE Summit, an exclusive conference in the gaming world, Kotick opened his keynote by discussing “how creative talent drives the video game industry.”
Thus, Microsoft must complete this transaction soon; otherwise, these talented, innovative game developers will leave. They will join competitors like Epic Games, Riot, EA, Take-Two Interactive, and Nintendo. And it would become more difficult for Microsoft to realize its vision in the video games industry. With an aging Generation Z and Alpha and a growing customer base. As a result, it only makes sense why Microsoft is willing to make such a significant investment in the industry. According to Microsoft CEO Satya Nadella:
“The combination of Activision Blizzard’s world-class talent and extraordinary franchises with Microsoft’s technology, distribution, access to talent, ambitious vision. And shared commitment to gaming and inclusion will help ensure our continued success in an increasingly competitive industry.”
By 2030, global estimates expect 4.5 billion people will play games, a 50% increase from 3 billion people today. NASDAQ: ATVI is a solid stock to invest in with a timeframe of 10 years. Lastly, the company will become instrumental in the rapid growth of the video games industry in the future.
Price Target: $100 per share