Mega-hit ‘Fortnite’ game has wiped out $6 billion in market value from industry leader Activision Blizzard

KEY POINTS

• Jefferies reiterates its buy rating on Activision Blizzard shares, downplaying concerns gamers are fleeing to a key competitor's title.
• "While our checks suggest Fortnite is indeed pulling some engagement away from Activision Blizzard, we think the monetization fears are overblown," the firm's analyst writes.
• Activision Blizzard stock is down more than 10 percent since its high on March 12 through Tuesday, wiping out $6.3 billion of shareholder value.

Worries over the rising popularity of Epic Games "Fortnite" have sparked a $6.3 billion decline in Activision Blizzard's market value. But one Wall Street firm believes the competitor's title will not cannibalize the publisher's profits.

Jefferies reiterated its buy rating on Activision Blizzard shares, downplaying concerns gamers are fleeing to "Fortnite."

"We see a buying opportunity as Activision Blizzard shares have traded down ~11% in the past week on fears Epic's mega-hit Fortnite could siphon engagement & monetization away from games like Call of Duty, potentially pressuring near-term results," analyst Timothy O'Shea wrote in a Tuesday note to clients entitled "Buy the Dip; Fortnite Monetization Impact Overblown." "While our checks suggest Fortnite is indeed pulling some engagement away from Activision Blizzard, we think the monetization fears are overblown."

O'Shea reiterated his $86 price target on Activision Blizzard shares, representing 20.5 percent upside to Tuesday's close.

Activision Blizzard stock is down more than 10 percent since its high on March 12 through Tuesday, wiping out $6.3 billion of shareholder value.

"Fortnite" is one of the hottest pop culture phenomenons right now, attracting rap stars, top Twitch streamers and gamers alike. The title, made by Epic Games, is surging online. Google search volume interest for "Fortnite" exceeded "Minecraft" in recent weeks.

Epic Games launched the free-to-play "Battle Royale" mode for "Fortnite" on PC, Playstation 4, Xbox One and Mac in September. "Battle Royale" type games have 100 online players violently battle to the death until only one player survives.

Tyler "Ninja" Blevins, a Twitch streamer, told CNBC on Monday how he manages to earn more than $500,000 per month playing the "Fortnite" game.

O'Shea predicts the gamers will stay loyal to Activision's titles. He noted the timing of the rise of "Fortnite" isn't during the key holiday season.

"The concern is Call of Duty and Overwatch gamers will churn to Fortnite. But we believe these game audiences, especially the hardcore 'spenders,' are less fluid than many investors believe," he wrote. "This looks like the classic short-term issue, we are predisposed to aggressively buy the dip given there is no change to our positive long-term stance on Activision Blizzard."