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The Ratings Game: Activision Blizzard stock downgraded as misconduct charges bring a ‘significant amount of uncertainty’

November 18
21:52 2021

Shares of Activision Blizzard Inc. extended their slide toward a 19-month low Thursday, after an analyst wrote that continued allegations of misconduct at the videogame company could further act as an “overhang” on the stock.

J.P. Morgan’s Alexia Quadrani cut her rating on Activision’s stock ATVI, -4.14% to neutral from overweight Thursday, writing that she was “reluctant to downgrade” a stock that’s been underperforming, but “recent negative headlines” about sexual-misconduct allegations “introduce a significant amount of uncertainty into this story.”

Activision Blizzard shares are off 4.4% in Thursday’s session and down 12.8% over a three-day span, to put them on track for the lowest close since April 2020. They’ve declined 25.8% over the past three months as the S&P 500 SPX has risen 6.4%.

The California Department of Fair Employment and Housing sued Activision Blizzard in July, charging that the company fostered a “frat boy” environment in which employees were subject to sexual harassment. The Wall Street Journal reported earlier this week that Chief Executive Bobby Kotick knew about rape allegations at an Activision-owned studio but didn’t notify the company’s board of directors about them.

An Activision Blizzard spokeswoman said in a statement to the Journal that the CEO “would not have been informed of every report of misconduct at every Activision Blizzard company, nor would he reasonably be expected to have been updated on all personnel issues.”

The company has come under fire by employees, who reportedly staged a walkout Tuesday, and from others in the industry. Bloomberg reported Wednesday that the head of PlayStation sent an email to his employees saying that he and his team expressed “deep concern” to Activision executives regarding their handling of the situation.

The PlayStation report is “only adding more apprehension to this story,” Quadrani wrote in her note to clients.

Quadrani remains upbeat about the company’s gaming portfolio and the stock’s valuation at a “15x trough multiple against this year’s guided EPS of $ 3.76.” Still, she doesn’t expect that Activision shares will be able to “outperform” before there is “clarity” on the issues of misconduct, and she wrote that the “duration of this risk factor is also not known at this time.”

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