Don't forget that Call of Duty Online will be FTP in China with micro transactions. ATVI might have a soft patch in the near term as I wrote in my article, but long-term they're not clueless when it comes to strategy.
Black Ops 2 sales are expected to be more or less in line with MW3. It would take a huge upside surprise in sales to really move the stock. The reason I emphasized Skylanders is because it's an incremental revenue stream, whereas Black Ops 2 is likely to more or less sustain the revenues/margins they've had from Call of Duty in general.
I definitely agree that Blizzard's going to be going full-throttle on Titan. I'm not looking out that far, since it's hard to forecast industry-wide trends, but you could very well be right. ATVI is the market leader for a reason, and that will probably play out in the longer-term.
Thanks for the comment. Essentially, my main point is that the great margins that have caused ATVI to outperform its peers are now vulnerable. If margins just fail to continue increasing (analysts expect upwards of 200bp increases for 2012 and 2013), then there will be mean reversion in the stock to the downside.
Does that make more sense?
Also, interesting point on the options. I'm not an options expert, so I'll let someone else take that one.
Thanks for the comment. I definitely agree that EA making their MMO FTP will be a contributing factor as well. They didn't make much headway when it was priced similarly to WoW, but I think a new pricing model has the potential to compound WoW's woes.
Thanks for pointing out Pandaria's pre-orders. I'll definitely be watching those in the coming weeks.
I would say that BO2 could be a disappointment. If you look at MW3, a large portion of the orders were front-loaded, and I think that could be the case with BO2 as well. If so, accelerating pre-orders might give way to disappointing post-release sales. Like you said, the next four quarters are key.
Hey Stephen, thanks for your comment. I would just be careful about waiting for news regarding WoW subscribers after Pandaria comes out. Management has made it so obvious that an increase is expected once the expansion is released that it would probably take a significant upside surprise in the number of subs to move the stock upwards. That being said, I don't see any reason why the stock might not reach $12.50 or even $13 in the short term temporarily. Good luck!
While the trend towards digital sales is obvious, my point is that rapid deterioration in World of Warcraft will be an even more significant factor to the downside. Analysts seem to be modeling in heavy margin expansion, and I just don't see ATVI achieving 32-33% operating margins.
If you look at the upcoming pipeline of games the main ones (Bungie, Titan) aren't set for release until late next year. That leaves another entire year of decline for World of Warcraft with only Skylanders to tide them over.
The main point is that their best-in-class margins are what currently keep them afloat. IF these margins fail to continue increasing or even decline, then it'll be a big hit to the stock.
Teradyne: An Undervalued Market Leader With High Growth Potential, Margins, And FCF [View article]
Thanks for reading and commenting.
I think Teradyne's done an incredible job of finding growth and ways to beat Street estimates despite shrinking CapEx from its customers. For example, Texas Instruments announced that its CapEx was near record lows in the beginning of 2012, and TER still pulled out nice top-line growth. To me, that suggests a great management team that can navigate potential declines in the ATE market.
Agreed, ATE definitely has a huge upper hand in memory right now. I'm more or less assuming that TER has no market share growth right now, and basing my bull case on LitePoint. If share declines though, it could definitely be a negative. Thanks for sharing.
The True Value Of An Idea: Why These Social Media Stocks Are Likely Overvalued [View article]
I agree that technology has removed an unprecedented number of barriers to entry. The one point I would make regarding competition is that for any company to steal meaningful share from Facebook would likely take several years, barring some critical misstep from Facebook - whereas anyone can come along and make better games than Zynga. There's a varying degree of competitive threat to companies within the social media space.
Stock Pickers: 'Somebody I Used To Know' [View article]
I agree with your skepticism in that the next 6-18 months may continue to be lackluster, simply due to the fact that growth is slowing globally, and both European and American politicians can't seem to agree on sustainable solutions for their respective fiscal situations. However, if we look out over the next 3-5 years, my bet is on equities.
Vivendi Sale Could Force Titan Announcement [View article]
I still don't understand how you can call the game a failure when it's had record-breaking sales. Seeking Alpha is a place to analyze companies from an investor's perspective, not to channel your inner hardcore gamer.
I completely agree with Scerabi that people complain about everything. It seems bad because people who are happy aren't loud.
Cherry Picker, you speak in hypotheticals and fail to get at the true crux of the problem. The fact is that Main Street needs financial markets however you cut it. "Wanting" to compete with traders with huge positions is different from "needing" to invest one's money.
Eliminating all short-term trading will have an enormous and unthinkable impact on the best and most liquid financial market in the world (that of the United States). Imagine any fund manager trying to sell a position of any size in an illiquid market - it's impossible. Liquidity is a large part of what makes our financial system the best in the world (even if it's the best in a bad bunch), and reducing it is going in the wrong direction.
Your Tobin Tax would kill market volumes and reduce liquidity. I'm not saying that Wall Street doesn't need a cultural overhaul, but a tax on short-term trades is not a good way to do it.
It seems like your argument for commodities partly hinges around the increasing possibility for QE3 (correct me if I'm wrong). While QE3 would definitely have a large initial impact on the markets, I doubt that it would solve the problem of slowing global growth. How do you account for that?
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Thanks for the comment.
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Thanks for sharing your options strategy!
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Thanks for the comment. Essentially, my main point is that the great margins that have caused ATVI to outperform its peers are now vulnerable. If margins just fail to continue increasing (analysts expect upwards of 200bp increases for 2012 and 2013), then there will be mean reversion in the stock to the downside.
Does that make more sense?
Also, interesting point on the options. I'm not an options expert, so I'll let someone else take that one.
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Thanks for pointing out Pandaria's pre-orders. I'll definitely be watching those in the coming weeks.
I would say that BO2 could be a disappointment. If you look at MW3, a large portion of the orders were front-loaded, and I think that could be the case with BO2 as well. If so, accelerating pre-orders might give way to disappointing post-release sales. Like you said, the next four quarters are key.
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
Activision's Market Leadership And Best-In-Class Margins Represent Additional Downside Risk [View article]
While the trend towards digital sales is obvious, my point is that rapid deterioration in World of Warcraft will be an even more significant factor to the downside. Analysts seem to be modeling in heavy margin expansion, and I just don't see ATVI achieving 32-33% operating margins.
If you look at the upcoming pipeline of games the main ones (Bungie, Titan) aren't set for release until late next year. That leaves another entire year of decline for World of Warcraft with only Skylanders to tide them over.
The main point is that their best-in-class margins are what currently keep them afloat. IF these margins fail to continue increasing or even decline, then it'll be a big hit to the stock.
Teradyne: An Undervalued Market Leader With High Growth Potential, Margins, And FCF [View article]
I think Teradyne's done an incredible job of finding growth and ways to beat Street estimates despite shrinking CapEx from its customers. For example, Texas Instruments announced that its CapEx was near record lows in the beginning of 2012, and TER still pulled out nice top-line growth. To me, that suggests a great management team that can navigate potential declines in the ATE market.
Agreed, ATE definitely has a huge upper hand in memory right now. I'm more or less assuming that TER has no market share growth right now, and basing my bull case on LitePoint. If share declines though, it could definitely be a negative. Thanks for sharing.
The True Value Of An Idea: Why These Social Media Stocks Are Likely Overvalued [View article]
Stock Pickers: 'Somebody I Used To Know' [View article]
Stock Pickers: 'Somebody I Used To Know' [View article]
Vivendi Sale Could Force Titan Announcement [View article]
I completely agree with Scerabi that people complain about everything. It seems bad because people who are happy aren't loud.
The Traders Did It! [View article]
Eliminating all short-term trading will have an enormous and unthinkable impact on the best and most liquid financial market in the world (that of the United States). Imagine any fund manager trying to sell a position of any size in an illiquid market - it's impossible. Liquidity is a large part of what makes our financial system the best in the world (even if it's the best in a bad bunch), and reducing it is going in the wrong direction.
The Traders Did It! [View article]
The Importance Of Being Clueless [View article]