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Jefferies: Record-Setting 'World Of Warcraft' Day Could Drive 12% Upside To Activision Blizzard EPS

Jefferies: Record-Setting 'World Of Warcraft' Day Could Drive 12% Upside To Activision Blizzard EPS
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The latest "World of Warcraft" release sold more than 3 million units in one day, which could translate to 10-12-percent EPS upside in the third quarter for Activision Blizzard, Inc. (NASDAQ: ATVI), the maker of the game, according to Jefferies.

The Analyst

Jefferies' Timothy O'Shea maintains a Buy rating on Activision Blizzard with an unchanged $90 price target.

The Thesis

Activision's "World of Warcraft" game "Battle for Azeroth" sold 3.4 million units, which puts it among the fastest-selling PC titles of all time, although it is difficult to quantify what the Street was expecting, O'Shea said in a Thursday note.

It is likely the sales figure beat the Street's expectations by around 1 million units, which could translate into 5-6 cents of upside to third-quarter consensus EPS estimates of 50 cents, the analyst said. 

The success of the game confirms its popularity in the West is near all-time highs — an impressive accomplishment for a 14-year-old game O'Shea said. The game is 100-percent owned by Activision and is downloadable through its service, making it 30 points more profitable than other launches, he said. 

Activision is building what the analyst said is a "Disney-style entertainment business for the 21st Century," but with higher operating margins. O'Shea named four new businesses that are in addition to Activision's core game business:

  • Mobile games ($200-$500 million in incremental revenue over the next 12 months).
  • Advertising ($250-$500 million of ad revenue in 2019).
  • E-sports.
  • Consumer products.

Price Action

Shares of Activision Blizzard were trading higher by nearly 1 percent at $71.86 off the open Friday. 

Related Links:

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

Photo courtesy of Activision Blizzard.

Latest Ratings for ATVI

Dec 2018JP MorganUpgradesNeutralOverweight
Oct 2018KeyBancMaintainsOverweightOverweight
Oct 2018BarclaysUpgradesEqual-WeightOverweight

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Posted-In: Jefferies Timothy O'Shea video games World of WarcraftAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga


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