Activision: After Mediocre Earnings, Why Buy this Stock?

When Activision (NASDAQ:ATVI) said it would lay off staff ahead of its earnings report, the stock started its rebound. Buying momentum continued after the report, also helped with Electronic Arts (NASDAQ:EA) recovering. But with ATVI stock at half the price of its yearly high, should investors buy it?

Activision earned $1.29 a share, or $0.84 a share GAAP. Bookings rose 7.6% to $2.84 billion from last year. At a 17.5 times forward P/E, the stock is not expensive but it pays a paltry 0.76% dividend yield. If Fortnite’s popularity changes the gaming landscape, ATVI stock will continue falling throughout 2019. So will EA stock.

In the near-term, Activision’s business is healthy. Activision’s #1 selling game, Call of Duty, helped propel operating income of $1.011 billion and 41% operating margin. This is an all-time record. Black Ops IV outsold Black Ops III.

Fortnite may be a free gaming platform that makes its money in-game and only after winning sign-ups, but King Digital, which makes Candy Crush, booked plenty of profit. In the fourth quarter, King made $207 million in operating income. MAUs topped 268 million, compared to 53 million for Activision and 35 million for Blizzard Entertainment.

Activision is no longer growing like it once was. Costs will get cut and the P/E multiple will shrink. Wait for a few more quarters of growth accelerating before buying ATVI stock.