Asif Suria

Ten Reasons I'm Buying Activision Blizzard

Enterprise Value (EV) = Market Cap + Debt + Preferred Shares + Minority Interest - Cash

Since Activision does not have any debt, I only subtracted cash from the market cap.

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Ten Reasons I'm Buying Activision Blizzard

@GoMyLittleSheep I have been holding the stock for over a year, periodically adding to my position since the merger. Thank you for your insight into the options. This has been a healthy and useful discussion.

Ten Reasons I'm Buying Activision Blizzard

@TJ0829: I believe the spread between GAAP and non-GAAP numbers combined with the fact that it is not possible to do year-over-year growth comparisons may have something to do with it. We should see post merger year-over-year growth numbers when they report results for the fourth quarter.

@Lonely Value: Besides the fact that Vivendi is not quoted on the US exchanges, the company is also into capital intensive telecom businesses and owns Universal Music Group. I would much rather have the faster growing pure play that Activision represents over Videndi unless the valuation of Vivendi is compelling.

Ten Reasons I'm Buying Activision Blizzard

@mbkelly75 As you very well articulated, the financial strength of the stock is great. However when you look at the P/E and PEG to reach your conclusions, you are taking GAAP earnings into account and not recognizing that the company is deferring a large portion of its revenue (and COGS) for World of Warcraft in such a way as to recognize sales over the entire subscription period. Most of the SG&A is however recognized in current periods, creating a situation where earnings may appear weak in the current period but should begin to trend higher in the future.

While GAAP earnings for 2009 are expected at 26 cents a share, giving the company a very high 2009 P/E ratio of 45.58, looking at the non-GAAP expected earnings of 63 cents a share, Activision has a 2009 P/E ratio of 18.81.

This might explain why the stock is not trending higher as looking at current numbers without digging in deeper makes the stock look very expensive.

You can find additional information from the following presentation on their website,

files.shareholder.com/...

Ten Reasons I'm Buying Activision Blizzard

@Shaftsinker I am well aware of Blizzard's track record of not shipping products on time. A game that I personally looking forward to called Starcraft Ghost was scrapped altogether and I addressed this in my original article about Activision Blizzard last year. That said they were originally planning on launching SC2 in time for Christmas this year but decided to move it to first half 2010. I think the primary reason they are splitting the game into three parts is to try and ship it out without pushing the release date out by years. They are also making changes to Battle.net to accommodate WOW as well as the new Starcraft.

@Hey Apples: You make some good points. DJ Hero did not do as well as expected and the Guitar Hero series appears to be aging. However the recent Call of Duty game goes on to prove just how much interest is there in the Activision franchises. The three Starcraft games, Diablo 3, WOW: Cataclysm and another MMORPG (Starcraft or Call of Duty?) make for an interesting pipeline that could more than make up for declines in Guitar Hero or Call of Duty.

Buying Aggressively, As Per Ben Graham

@Blizzfan: My focus is indeed on the Blizzard and subscription based WOW part of the Activision Blizzard business as you can see from the following article,

www.sinletter.com/arch...

@nyka: Care to be my editor? :)

@Stone Fox Capital: The IBN calls were part of a strangle as discussed in the following blog entry.

www.sinletter.com/blog...

Given the extreme sell-off in the shares, I was expecting a sharp movement in either direction but mostly on the upside. With the new short selling rules that SEBI has put in place, I believe appreciation in ICICI is likely to be rapid.

Ride Out the Recession with Activision Blizzard

I agree Boris that this is not just a recession play but could do well as a very long-term investment as well. With a market cap of $23 billion and projected 2009 revenue of $4.5 billion, their P/S ratio works out to 5.11, which in my opinion is not very expensive if the merger with Blizzard improves operating and profit margins.

As I mentioned in the article, revenue could increase significantly if the company created console versions of Blizzard's franchises and/or introduced MMORPG versions of Diablo or Starcraft. It remains to be seen how the new company executes but I wanted a piece of the action while I could get it at a reasonable valuation.

Following Big Money Pays Off

Infogrames already owns a majority stake in Atari and uses the Atari brand for its games. Hence the 2 cent premium offered to buy out the rest of Atari. I still remember the day Infogrames bought the Atari name and the stock doubled from $3 to $6 overnight. Lackluster sales of the Matrix games and loss of the Unreal Tournament franchise has left this stock in the dumps despite a raging gaming market.

I agree with Serge that you may be too late to the party or in the case of Atari, its obituary.