Argus Boosts Activision Earnings Estimates, Thinks Stock Should Trade At A Premium

The acquisition of King Digital Entertainment PLC KING “catapults” Activision Blizzard, Inc. ATVI into mobile casual gaming, which is the fastest-growing segment of the videogame industry, Argus’s Joseph Bonner said in a report. He reiterated a Buy rating on Activision, after the company reported robust 2Q16 results.

Although the acquisition of King Digital Entertainment has some risks and make take time to “prove its worth,” it gives Activision the “Candy Crush” franchise and access to King’s strategic talent, analyst Bonner mentioned. He added that the acquisition should also strengthen Activision’s presence in the fast-growing Asia Pacific market, which is currently the company’s weakest geographic segment.

Strong Results

Activision reported its 2Q16 non-GAAP revenue at $1.6 billion, representing 17 percent y/y growth. The results were driven by the acquisition of King Digital Entertainment. Activision beat its 2Q16 revenue guidance by $234 million and its EPS forecast by $0.16, Bonner noted.

Second-quarter results were boosted by the successful launch of “Overwatch,” continued strength of “Call of Duty” and growth of the “Candy Crush” franchise.

The analyst raised the non-GAAP EPS estimates for 2016 and 2017 from $1.88 to $2.00 and from $2.00 to $2.13, respectively. He added, “In our view, ATVI deserves to trade at a premium to peers based on the company’s industry leadership.”

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