Activision Blizzard Bounces Back With A Strong Q1; Barclays Raises Target To $38

Barclays said that Activision Blizzard, Inc. ATVI has bounced strongly with its strong first-quarter results reporting adjusted earnings $0.23 a share, which was nearly double the estimate of $0.12 a share. The brokerage said that the upside was mostly driven by "Call of Duty," "both from strong follow-on bundled unit sales and extra content revenue from DLC (including the most ever map packs sold to players), as well as from in-game purchases.

Analyst Christopher Merwin, boosted the price target to $38 on Activision Blizzard shares from $35. However, he maintains the Overweight rating on the company. The brokerage pointed out that digital provided a major boost to "CoD" as revenue of $328 million came in significantly ahead of its $200 million estimate, "and increased by $96 million year-over-year." The analyst believed that "most of the year-over-year increase was from a higher attach rate for DLC sales, and the addition of micro-transactions into game-play."

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Merwin said, "We believe the rest of the 1Q beat was attributable to a better-than-expected partial quarter contribution from King, which benefited from the launch of Candy Crush Jelly Saga in January, causing MAUs to increase 3 percent q/q. Despite the $0.12 beat to 1Q guidance, Activision only raised its FY16 outlook by $0.03 – consistent with management's history of conservative guidance and we don't think indicative of any pessimism around 2H16."

The brokerage added, "Due to ongoing tailwinds from digital content sales and our increasing optimism around the 2Q launch of Overwatch, we are raising our FY16 non-GAAP EPS estimate to $1.90 from $1.85."

Barclays concluded, "After a lot of speculation, Activision confirmed that King would look to layer in advertising to its games, but not until after 2016. King has already started to test various ad formats in its games, and if King does indeed decide to fully roll out ads in 2017, we believe it could cause $0.50 of upside to our current 2017 EPS of $2.22."

The new $38 price target was based on 20x its 2016 EPS estimate of $1.90 compared to the 19X multiple earlier.

At time of writing, Activision was up 7.79 percent at $37.63.