Barclays On Activision Blizzard: 'There's A Hero Buried In The FX Storm'

Activision Blizzard, Inc. (NASDAQ: ATVI) reported solid fourth-quarter results on Thursday, in line with estimates on the revenue front, and slightly ahead on EPS. However, the guidance for 2015 was relatively weak, both on revenue and EPS. A report issued by Barclays on Friday attributed the soft guidance largely “to unfavorable trends in FX and a higher expected tax rate.”

The firm lowered its price target on the stock from $27 to $25, and its EPS estimate for fiscal 2015 from $1.50 to $1.19. However, it maintained an Overweight rating, as it believes in the long-term potential of the company.

Related Link: Activision Blizzard Reports Q4 Results, 2015 Outlook Misses Expectations

“Heading into the printm," analyst Christopher D. Merwin explained, "we believe there was on overhang on shares because of concerns around 2015 guidance, which has now passed, in addition to Vivendi's possible sale of 41.5M shares. After the close, Activision registered a shelf for 41.5M shares of stock, and if /when Vivendi sells its shares, we are optimistic that the final overhang on ATVI shares will abate, setting the stage for positive EPS revisions throughout 2015.”

Barclays expressed its bullishness for 2015, despite the soft guidance.

"Organically, the guide is really for a y/y decline of $0.05, but with higher expected profitability for Destiny in 2015 (less revenue but none of the software amortization), Call of Duty lat y/y, and ramping FTP revenue from a full year of Hearthstone and the launch of Heroes of the Storm/CoD Online in China, we believe guidance could end up being conservative. We believe any moderation in FX and shares repos could be further sources of upside.”

Moreover, the analyst expects organic margin expansion this year. He believes margins – on an organic basis - should expand by at least 100 bps in 2015. Some of the main drivers of this expansion are “higher expected profitability from Destiny, an increasing share of digital downloads for console-based games, and free-to-play revenue that is coming in at an estimated 80% gross margin.”