Activision Gains as Goldman Likes Gamemaker's Turnaround Plans

(Bloomberg) -- Analysts are broadly pleased with Activision Blizzard Inc.’s plans for an overhaul this year after a horrific 2018.

Goldman Sachs said the video-game maker’s plan to slash its overall workforce by 8 percent while increasing headcount of developers dedicated to its most popular titles makes sense as it enters 2019 with slower momentum in engagement and in-game monetization. MKM said the changes are particularly urgent, pointing to declining fourth-quarter revenue for the “Call of Duty,” “Overwatch” and “Hearthstone” franchises.

Activision shares jumped as much as 8 percent in early trading on the plans, even after announcing quarterly sales that trailed analysts estimates. The shares fell 26 percent in 2018 amid competition from Epic Games Inc.’s hit free-to-play game Fortnite.

  • Activision is looking to enter 2019 in “attack mode” as it grows development talent for its largest titles while scaling down/eliminating underperforming titles, MKM analyst Eric Handler says.
    • Increased development resources should help with content production, expand the franchises to more platforms and increase geographic growth
    • Agrees with restructuring plan but says “revitalization timeline is not clear, which creates uncertainty not only with 2019 but also with 2020”
    • Lowered price target to $45 from $48
  • Goldman Sachs analyst Michael Ng says major content releases will be fairly limited, but believes the “Call of Duty” franchise should benefit from increased collaboration across the franchise’s three developers.
    • Says feedback from within Activision about new “Call of Duty” title is promising
    • Although Blizzard will not have any new 2019 front-line releases, its pipeline is “more robust than ever before with planned mobile/console/PC content”
    • Lowered price target to $45 from $50
  • 2018 was a “year to forget,” Piper Jaffray analyst Michael Olson wrote, and 2019 will be about focusing on areas of potential growth in the company’s key franchises.
    • Says investors may “kick the tires” on the company as talk surrounding the 2020 pipeline increases
    • Notes that management has “historically under-promised and over-delivered,” and believes the company has set conservative 2019 EPS guidance
    • Lowered price target to $52 from $55

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