Activision's 'Overwatch' Profitability Is Underappreciated, Says Pacific Crest

Following the early success of "Overwatch," after its May 24 launch, Pacific Crest’s Evan Wilson believes the consensus EPS expectations for Activision Blizzard, Inc. ATVI for Q2 are conservative.

Wilson maintains an Overweight rating on the company, with a price target of $43.

Underappreciated Potential

“Due to Overwatch's heavy PC mix, strong digital download percentage, low capitalized software expense and no IP royalty, we think there is upside and would continue to be buyers of ATVI,” the analyst mentioned.

Wilson expects "Overwatch" to contribute margin of at least 65 percent and account for 21 percent of the Q2 revenue.

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The analyst believes favorable margins would be driven by the fact that "Overwatch" was “strongly PC-skewed,” had a high digital download rate, came with low capitalized software development costs and had an owned IP.

What Statistics Say

According to statistics from the video streaming site Twitch, which is popular among videogame players, "Overwatch" has been “oscillating between the fifth and sixth most popular game among the major stalwarts.”

In addition, “recent tracking data from Gametrics and Multiclick show that Overwatch is challenging perennial top game League of Legends (LoL) for the most played game in South Korean Internet cafes,” Wilson stated.

The analyst believes "Overwatch" is well positioned to knock "LoL" from its top position.