stock hasn’t gotten much traction since its earnings report on August 1.
On the one hand, that lack of movement is not particularly surprising, given that Microsoft has offered to buy the game software and console maker for $68.7 billion, or $95 per share. Stocks often gap higher on a buyout bid, as Activision did in January.
On the other hand, there’s still a wide gap between Activision’s current price and Microsoft’s offer. Activision shares were trading between $80 and $81. That’s essentially where they have been rangebound for the past few weeks.
Here’s where uncertainty about the Microsoft deal comes into play: The acquisition is under scrutiny from antitrust regulators not only in the U.S., but globally. While the market waits for multiple approvals, the stock is languishing well below that magic price of $95.
This means there could be an opportunity for investors to exploit the difference between the offer and the current price. If the deal goes through, that could result in a big payday for investors. But there’s still a risk that the acquisition may not be approved, which would send the price lower, at least for some period of time.
However, industrywide, there are signs of trouble, as revenue is slowing following a pandemic-era boost. While people were home looking for entertainment, video games fit the bill. These days, with pretty much everyone out and about? Gaming has lost some luster.
In addition, component makers are suffering through supply-chain slowdowns, which limits revenue.
Activision earned $0.48 per share in the most recent quarter, a year-over-year decline of 60%. That’s pretty significant. Revenue was $1.644 billion, down 28%. Year-over-year sales have been lower for the past three quarters, following two quarters of sales deceleration.
Looking back, it’s now clear that peak revenue growth occurred in the quarter ended in December 2020, before vaccines were widely available and more people began venturing out of their houses again.
Underperforming S&P 500
Video game rival Electronic Arts (NASDAQ: EA) has fared better in terms of earnings and revenue growth, but its share price is underperforming the S&P 500 by a wider margin than Activision.
In its latest quarter, EA earned $0.47 a share on revenue of $1.767 billion, gains of 688% and 14%, respectively. The company guided towards adjusted earnings of $1.30 per share in the current quarter, on revenue of $1.75 billon, below Wall Street’s expectation of $1.46 per-share earnings on sales of $1.84 billion. EA’s full-year guidance also fell short of analysts’ views.
However, despite that lower-than-expected guidance, the stock is up 3.7% since reporting earnings. It’s chopped around near its 50-day moving average in recent weeks, and on Tuesday cleared resistance above $134.92 before pulling back. It remains to be seen whether it can power decisively past that level and sustain a rally.
Roblox Total Users Down
Roblox (NYSE: RBLX), another large-cap gaming company, is once again reporting losses after notching profitable years in 2020 and 2021. The stock is trading fractionally higher since delivering quarterly results last week.
Although the company said the number of daily users grew year-over-year, there was some bad news: The total number of users was down, relative to the previous quarter.
The stock is down 52.54% year to date, although it’s rallied 23.11% in the past month.
According to MarketBeat analyst data, the consensus rating on the stock is “hold,” with a price target of $44.94, a 5.69% downside.
The stock generated excitement among investors and traders at the time of its March 2021 direct listing, as influential investors such as Ark Investment Management’s Cathie Woods purchased shares. In fact, as recently as August 10 Ark noted in its trade alert that it has purchased 147,455 shares of Roblox for the ARK Innovation ETF (NYSEARCA: ARKK).
While institutions are obviously adding shares, as we can see in recent rallies of gaming stocks like EA and Roblox, watch the growth prospects before deciding to make a play. That’s true for any stock in any sector, but particularly relevant at the moment for an industry that is seeing declining sales and even issuing guidance below Wall Street’s expectations.