Activision-Blizzard Could Sell Off to 50

Activision-Blizzard Inc. (ATVI) has sold off nearly 12% since reporting Q3 2021 earnings on Tuesday evening, dropping to the lowest low since May 2020. The video game provider posted a profit of $0.82 per-share, beating estimates by $0.14, while revenue grew 6.8% year-over-year to $1.89 billion, meeting consensus. Shareholders headed for the exits after the company warned about the fourth quarter, significantly dropping earnings-per-share (EPS) and revenue guidance.

Sexual Misconduct and Brand Destruction

Controversy struck in July when allegations of widespread sexual misconduct prompted a SEC investigation, as well as California regulatory lawsuits and mass firings. Local authorities have objected to an $18 million settlement with the U.S. Equal Employment Opportunity Commission (EEOC), stating it will impact their active litigation.  However, despite ongoing brand destruction, the company chose to blame game delays for the bearish guidance.

 Activision pushed back expected launches of Diablo IV and Overwatch 2, apparent victims of the scandal and staffing shortages, while announcing the departure of Blizzard second-in-command Jen Oneal after just three months on the job. Worse yet, the Nov. 5 release of Call of Duty: Vanguard isn’t expected to slow the stock freefall while Diablo Immortal, a mobile version of the classic game, may get banned in China as part of their video game crackdown.

Wall Street and Technical Outlook

Inexplicably, Wall Street has chosen to ignore the controversy, posting a consensus ‘Buy’ rating based upon 22 ‘Buy’, 6 ‘Overweight’, and 5 ‘Hold’ recommendations. Price targets currently range from a low of $65 to a Street-high $125 while the stock is set to open Wednesday’s session less than $3 above the low target. This dismal placement reveals a shocking failure by analysts in evaluating a major issue that’s impacting investor decision-making.

Activision-Blizzard completed a round trip into the 2018 high at 84.68 in August 2020 and pulled back, completing the handle in a multiyear cup and handle pattern. A December buying spike stretched to an all-time high at 104.53 in February 2021, giving way to a descending triangle that broke to the downside in July, failing the breakout. Persistent selling pressure since that time has now pierced major support at the 200-week moving average near 70, adding to major sell signals that may presage a decline toward 50.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.