Activision Blizzard's Strong eSports Performance Pushes Morgan Stanley To $100 Bull Case

Activision Blizzard, Inc. ATVI has huge potential ahead, thanks to faster-than-expected growth in eSports and continuing momentum.

The Analyst

Morgan Stanley analysts led by Brian Nowak maintained an Overweight rating and $75 price target for the stock, but pushed a sum of the parts bull case up to $100.

The Thesis

Far and away the biggest factor driving Nowak’s new bull case is Activision’s Overwatch League. Audiences are two times bigger than the analyst had projected, and gains in licensing, events and merchandise could see Overwatch League revenue coming in 1.4 times higher.

With an estimated 50 percent of gamers watching eSports at an average viewing time of 1 hour per day, the analyst sees Activision continuing to exceed audience expectations.

Nowak also expects the company to launch an eSports league for the popular "Call of Duty" franchise starting in 2019. "Call of Duty’s" player base is approximately twice as large as "Overwatch’s" and could generate $105 million in 2020.

The third factor driving the now bull case is a projected $17 million of gambling revenue in 2020, thanks to the recent U.S. Supreme Court decision allowing states to legalize sports betting. 30 percent of viewers could wager as much as $20-40 each annually.

Price Action

Shares of Activision were trading up 1.5 percent at $71.23 Wednesday morning.

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"Overwatch" screenshot from Wikimedia.