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Matthew Roesener
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Coder @Quantopian. All about blockchain apps, fin apps, cool factor models, surf. Grew up in Hawaii. Live in Los Angeles. CFA Level II Candidate @CFAProgram @CFAinstitute
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Reminiscence Of A Young Financier
  • Activision Earnings After The Bell - Could Call Of Duty Be Its Savior And Will WoW Perform? 2 comments
    Feb 7, 2013 1:07 PM | about stocks: ATVI, EA, TTWO

    So if you saw my FB and stocktwits post yesterday, I had trouble canceling my Activision (NASDAQ:ATVI) trade.

    Tried canceling my $atvi call order in a elevator. Not a good idea!

    I eventually got around to canceling it.

    So you may be wondering, why would I do that? Well first of all, ATVI has earnings after the bell today. I've been doing quite a bit of research on the company and at first thought it may be a good trade to buy. I was a little biased because of looking at the past earnings results for both Electronic Arts (NASDAQ:EA) and Take Two Interactive (NASDAQ:TTWO) last week. If you look at those company stocks earnings exploded!

    (click to enlarge)

    (click to enlarge)

    So one would assume that ATVI would have a great quarter as well right?

    Well I did further research into the company financials. ATVI is significantly undervalued that is for sure. If we project a 6% compounded annual growth rate into the future. A 20% operating margin and an avg cost of capital of 8%. My model shows that the stocks fair value should be at $14.75. That's almost a 25% premium to the current value of ATVI stock.

    Other analyst have similar price targets:

    But what's at stake here is ATVI's earnings.

    There are 3 very important metrics that analyst will be looking at during the earnings conference:

    1. Microsoft Console Revenues (Call of Duty)

    2. Online Subscriptions (World of Warcraft)

    3. Sony Console Revenues (Call of Duty)

    I'm not to worried about Call of Duty's Black Ops. I believe they had a strong run this past quarter and the numbers will be positive. What's at issue is World of Warcraft, WoW. WoW has been loosing subscribers from a high of 11 million to a low of 9 million. With the release of Mists of Pandaria the subscriber base has leveled to 10 million. This is a very important number going forward. If ATVI can report an increasing subscriber base for WoW, the stock will jump up.

    The issue is I don't think this is the case. Especially with new competition, and a new business model, Free to Play (FTP). With the rise of FTP games such as Guild Wars 2 and League of Legends, both of which you do not have to pay subscription fees, WoW will have a hard time competing. You a have to pay $15 a month to play WoW. Wow!

    I believe ATVI is undervalued and is a good stock. But as for an options trade, I believe the risks are too great.

    We'll have to see after the bell today!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: ATVI, EA, TTWO
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Comments (2)
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  • Philip Saglimbeni
    , contributor
    Comments (480) | Send Message
    I think most publishers stand to do well with the next generation of consoles releasing soon. I can't wait to hear and see what Sony and Microsoft have planned. We'll know what's going on with Sony later in February!
    7 Feb 2013, 01:11 PM Reply Like
  • Matthew Roesener
    , contributor
    Comments (21) | Send Message
    Author’s reply » Hey Phill,


    I agree! I'm very bullish on publishers and creative content providers in general! I'm excited to hear more about the PS4 and Xbox 360 consoles.
    8 Feb 2013, 05:15 PM Reply Like
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