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Activision Blizzard, Inc.
ATVI Details
Activision Blizzard, Inc. (NASDAQ: ATVI) is engaged in the development and publishing of interactive games and services. The company operates in three segments namely, 1) Activision Publishing, which generates earnings from the sale of full games and in-games, as well as from licensing software to third-party firms that distribute Activision products. Call of Duty is a franchise product of this division. 2) Blizzard Entertainment, generating income from the full game and in-game sales, subscriptions as well as from licensing software to third-party firms that distribute Blizzard products. World of Warcraft, Hearthstone, Diablo, and Overwatch are some of the key products of Blizzard. 3) King Digital Entertainment, generating revenues from in-game sales and in-game advertising on the mobile platform. Candy Crush is its key franchise product. As of June 08, 2021, the company’s market capitalization stood at USD 75.46 billion.
World of Warcraft: Burning Crusade Goes Live: On June 01, 2021, the company announced that Blizzard Entertainment has launched an authentic recreation of its first World of Warcraft expansion. With this launch, players can advance characters on the Burning Crusade Classic realms to level 70 starting June 15, 2021.
Q1FY21 Results: The company reported a 27.23% increase in net revenue to USD 2.28 billion in Q1FY21 (ending March 31, 2021) as compared to USD 1.79 billion in Q1FY20, driven by a 43.97% growth to USD 1.12 billion in the Activision segment in Q1FY21. Net income during Q1FY21 was USD 619.0 million vs USD 505.0 million reported in Q1FY20.
Key Risks: The company’s largest customers are Microsoft and Sony, which accounted for 28% and 21% of its consolidated gross receivables in FY20. Partial or total loss of business from these major customers might result in a considerable decline in revenues, and also impact the financial and operational health of the company. In addition, ATVI depends on servers and networks, some of which are owned and operated by third parties, to operate its games with online features and gaming services. If it loses functionality in any of these areas for any reason, its business could be negatively impacted.
Outlook:
Financial Outlook (Source: Q1FY21 Results Presentation, May 2021)
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Data Source: REFINITIV, Analysis by Kalkine Group)
ATVI Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: ATVI stock price surged by 15.75% and 27.07% in the past 6 and 9 months, respectively, and is currently at the higher end of the 52-week range of USD 68.33 to USD 104.53. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 102.94. Considering the consistent increase in stock price, huge product portfolio, and positive business outlook, we recommend a “Hold” rating on the stock at the closing price of USD 96.80, down by 0.33% as of June 08, 2021.
* The reference data in this report has been partly sourced from REFINITIV.
ViaSat, Inc.
VSAT Details
ViaSat, Inc. (NASDAQ: VSAT) is a pioneer in communication technology products and services, including high-speed broadband and advanced communication products. The company generates revenue from three segments namely, 1) Satellite, providing satellite-based highspeed broadband products and services to residential customers, enterprises, commercial airlines, etc.; 2) Commercial Networks, developing and providing satellite and wireless broadband platforms, networking equipment, and advanced microwave solutions; and 3) Government Systems, offers worldwide mobile broadband services to militaries and governments. As of June 08, 2021, VSAT’s market capitalization stood at USD 3.80 billion.
ViaSat-3 Satellite Shipped to Boeing System: On June 07, 2021, the company’s first satellite in its ViaSat-3 global constellation, which will serve the Americas and the surrounding oceans, completed its payload integration and performance testing and was shipped to the Boeing Satellite Systems facility in California. The payload will be integrated with the bus module based on Boeing's 702 platform, and the satellite will be launched in early 2022.
Military-Grade Encryption for Low Earth Orbit Spacecraft: On June 01, 2021, VSAT stated it will integrate its In-line Network Encryptor (INE) into the world's first Link 16-capable low earth orbit (LEO) satellite, which the company is developing for the US Air Force Research Laboratory Space Vehicles XVI program. The INE will be the first crypto deployment on a Link 16-capable LEO satellite, and will initially provide communications security and enhanced cybersecurity associated with mission data transfer.
FY21 Results: The company reported a slight decrease of 2.23% in net revenue to USD 2.26 billion in FY21 (ending March 31, 2021) as compared to USD 2.31 billion in FY20, primarily due to a 6.31% decline in revenues from the Government Systems segment to USD 1.07 billion in FY21 as compared to USD 1.14 billion in FY20. Net income for FY21 was USD 3.7 million, compared to a net loss of USD 0.2 million reported in FY20.
Key Risks: The US Government contributed 30% and 26% to the company’s total revenue in FY20 and FY19, respectively. Hence, any loss of business from them might result in a considerable decline in revenues for the company. Moreover, VSAT relies heavily on contract manufacturers and sole/limited source suppliers for the majority of its products and components. If these manufacturers and suppliers fail to deliver for any reason, it could adversely affect the company’s financial standing.
Outlook: VSAT stated that its Satellite Services outlook for FY22 is robust, with greater contributions from in-flight connectivity (IFC) and enterprise markets. The Commercial Networks is expected to benefit from the backlog of IFC terminal sales and antenna system products. Revenue from the Government Systems is anticipated to return to growth, driven by USD 1.2 billion of awards signed in FY21.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Data Source: REFINITIV, Analysis by Kalkine Group)
VSAT Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: VSAT has surged by 53.37% in the past 6 months and is currently at the higher end of the 52-week range of USD 29.82 to USD 61.35. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 56.34. Considering continued positive business developments, robust outlook, and current valuation, we recommend a “Hold” rating on the stock at the closing price of USD 52.50, up by 0.27% as of June 08, 2021.
* The reference data in this report has been partly sourced from REFINITIV.
Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.
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Past performance is not a reliable indicator of future performance.
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