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How Material Is King Digital To Activision Blizzard Investors?

How Material Is King Digital To Activision Blizzard Investors?

  • Shares of Activision Blizzard, Inc. (NASDAQ: ATVI) continued to surge on Wednesday trading.
  • On Tuesday, the company beat quarterly estimates; it also announced the acquisition of King Digital Entertainment PLC (NYSE: KING).
  • As research firms continue to weigh in on the results and the acquisition, let’s take a look at what analysts at Pacific Crest and Wedbush are saying.
  • Wedbush

    Following the earnings call, Wedbush’s Michael Pachter and his team reiterated an Outperform rating on the stock and raised their price target by $10 to $47. The reiteration and price target adjustment were based both on the earnings beat and the acquisition of King Digital, which will create a “mobile powerhouse,” a report stated.

    “The King deal acquisition makes eminent sense,” the firm assured. It is clear by now that the mobile games market is not only large, but consistently growing. In fact, the firm estimates the current addressable market stands somewhere close to $24 billion and believes it could grow by 15 to 20 percent annually over the next five years.

    Related Link: Power Up: Analysts React To Activision Blizzard's Acquisition Of Candy Crush-Maker King Digital

    It is also quite evident that Activision does not count with “the skills set as an organization to compete in the mobile market; this is not an indictment of the company, but rather is a reflection of the fact that Activision has only one game in the top 50 on AppAnnie’s top grossing charts,” the report expounded.

    On the other hand, the analysts noted that King Digital has been consistently one of the most successful publishers in the arena. Consequently, they stated, “Activision gains a lot by buying King rather than taking a decade or more to build out its own mobile development capability.”

    Pacific Crest

    Pacific Crest analysts Evan Wilson and Tyler Parker also seemed quite bullish on Activision post-earnings and acquisition. On Tuesday, the firm reiterated an Overweight rating on the stock, raising their price target by $11 to $41 and their 2016 EPS estimate to $2.05 from $1.55, mainly on the back of the accretion from the King Digital acquisition.

    The experts pointed out that, “Although King is a declining business, 30 percent accretion to 2016 earnings and unlocking the value of overseas cash makes this one of the most ‘Activision’ of Activision deals it has ever done.”

    While the firm is not optimistic regarding King’s growth potential, the experts do think it may be inconsequential in the longrun, stating, “Activision structured this deal so it does not need it.”

    Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

    Image Credit: Public Domain

    Latest Ratings for ATVI

    Nov 2019MaintainsBuy
    Nov 2019MaintainsOverweight
    Nov 2019MaintainsOutperform

    View More Analyst Ratings for ATVI
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