Game On for Activision Blizzard

We get the sense that the bullish toned financial pre-announcement issued by Activision Blizzard Inc. (ATVID) is only an indication of what lays ahead. Actually, we must point out that the preliminary financial data provided for 1Q09 on July 14 was predicated on Activision as a stand-alone entity, foreshadowing superior execution once results are reported on a combined basis. Management now estimates 1Q09 net revenues of $650.0 million and non-GAAP earnings per share of $0.21-$0.27, well above previous guidance of $500.0 million and $0.04, respectively. The momentum was maintained in the Guitar Hero franchise where a new, highly innovative release for the Nintendo DS platform generated meaningful sales. Moreover, the release of movie-themed title Kung Fu Panda earlier in the quarter was met with robust demand from its target audience.

It's hard not to be excited about what Activision Blizzard has in store for gamers, and subsequently investors, in 2008 and 2009. For Activision Publishing, it will release the next installment in the Guitar Hero franchise this fall, coined Guitar Hero: World Tour. This title undoubtedly elevates the franchise to new heights (and beyond Electronic Arts' Rock Band) as it will sport wireless peripherals, music editing features, online competitive band play, and downloadable music content from GHtunes (set to rival Apple's Itunes). We are also particularly optimistic on Quantum of Solace, the next episode in the James Bond franchise, and the first release from Activision since it obtained the license. The title is based on the Call of Duty game engine, hinting that its game play and graphics will be much improved from when Electronic Arts was butchering the brand years ago. Blizzard has its sight set on 2009, where it plans to disseminate the next chapters for World of Warcraft and Starcraft, two online game titles that have fanatical followings globally.

In our opinion, shares of Activision Blizzard have considerable room to appreciate as cost synergies and revenue opportunities are realized to a strong degree. The stock deserves to trade at much higher multiples than currently afforded due to:

1. industry leading position in a sector that is expanding rapidly due to new hardware consoles and great acceptance of online gaming features; 
2. product offerings are best of class;
3. the cyclical nature of the videogame business should theoretically be reduced as Blizzard has a lucrative recurring revenue stream, and
4. combined company has only scratched the service regarding international opportunities.

Written by Brian Sozzi, a Research Analyst for Wall Street Strategies (www.wstreet.com) specializing in the apparel/hardline goods sectors of the retail industry.

Disclosure: none

Comments

[vitaminc]

What an article without any essence!

Do you even play any videogames or even remotely understand the industry at all...

[AlphaApprentice]

The announcement of Diablo III and Starcaraft II by Blizzard cannot be emphasized enough. Fans have been actively hoping (i.e., setting up online petitions) for over 8 years to get a sequel to this games. I do not know of any other game to have such clout among a fan base.

Although, the release date is not yet available, this two games have millions of fans-many of which still play Diablo II and Starcraft.

They are destined to be blockbusters and could, at least collectively, out sell Grand Theft Auto IV.

[borisb]

potential growth factors
1. Guitar hero (4th)(new add on hardware)(GHtunes)(sin... band titles)
2. MMO expansion (infancy)(social-commu... based entertainement)
3. merger (cost savings)
4. merger (distribution in europe-asia)
5. other atvi titles revamped
6. other blizzard titles revamped
7. new hardware Wii, NintendoDs, Cellphones. GH is a breakothrough game application in cellphones.
8. other M&A moves
9. share buyback
10. stock split