Financial analysts have downgraded Activision Blizzard’s stock due to worries that its brand new pro-gaming league for Overwatch wouldn’t meet expectations.
In a note to clients - as reported by CNBC - Cowen said that while the Overwatch League would likely live up to the hype in coming years, the first season might disappoint investors. As a result, the stock was downgraded from ‘outperform’ to ‘market perform’, meaning return on investment will be in line with the market.
This is the first time that Cowen has downgraded Activision Blizzard in nine years of analysis. It says that its valuation versus the rest of the market was "based on investor optimism around the potential for esports to be a large profit generator in the future.”
"As this is the first time a publisher has ever attempted to launch a major eSport from scratch, we expect Overwatch League 1.0 to be a learning experience, and thus believe that the probability of reality failing to meet investor expectations is relatively high," analyst Doug Creutz wrote.
However, the firm says it is optimistic about the direction of Activision Blizzard’s business as a whole.
"We remain confident about the trajectory of Activision's core business, with Call of Duty likely to rebound this year and Black Ops 4 likely due for release next year,” Creutz said.
“However, we have a significant bit of nervousness around the debut of Overwatch League.”
Overwatch League was announced earlier this year, with Blizzard announcing a dedicated eSports arena in LA in September. Activision Blizzard sold franchises in LA and London in August.
Activision Blizzard wasn’t the only games firm that Cowen downgraded recently. The firm also moved Take Two from ‘outperform’ to ‘market perform’ due to concerns about the cadence of releases from the Grand Theft Auto giant.
Creutz also lowered its rating to market perform from outperform for Take-Two shares Monday, citing concerns over the company's lengthening gap between title releases.
While Take-Two's "digital initiatives have certainly borne fruit, the frequency of highly successful title releases still has a significant bearing on the company's average earnings power," he wrote.
"From a tactical perspective, we also believe that many investors are in TTWO shares specifically in anticipation of RDR 2's release, with a meaningful risk of a post-launch sell-off in shares,” the firm wrote.