Finally a Way for Activision (ATVI) to Monetize its Legacy Titles - Jefferies

Activision Blizzard's (NASDAQ: ATVI) $6B acquisition of KING brings the mobile gaming platform as well as its massive audience of 474MM mobile gamers. Big numbers but the concern has been, will the publisher of Call of Duty get leverage out of the Candy Crush gamer?

Maybe analysts weren’t looking back far enough when they criticized Activision’s selection of King Digital to transform its mobile business. At first glance, it’s easy to see how some of Activision’s top titles don’t translate well into King’s Candy Crush’s installed base but Jefferies analyst, Brian Pitz, takes another perspective. Looking back into the company’s gaming portfolio, to titles like Pitfall, the low res, gender neutral titles may be suited to young modern gamers.

Another key consideration is that due to King Digital’s location, this could be a way of leveraging a portion of ATVI’s stranded overseas cash balance. By buying KING, this is a way for Activision to create an onshore income stream with offshore cash.

The deal will be accretive to revenue and EPS by approximately 30%. On a TTM basis, ATVI and KING generated $4.9B and $2.1B of revenue as well as $1.1B and $0.6B of net income, respectively. By combining the two companies, 2016 non-GAAP EPS estimate goes to $2.04 per share vs $1.64 for standalone ATVI. No change to the Buy rating but the price target jumps to $45 PT (was $33).

For an analyst ratings summary and ratings history on Activision Blizzard click here. For more ratings news on Activision Blizzard click here.

Shares of Activision Blizzard closed at $36.99 yesterday.

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