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OneCasualObserver

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  • Why I Left My Cheerleader Pom-Pons At The Door And Sold Activision Blizzard [View article]
    I agree with the comments about this being an excellent article with solid arguments.

    I'm ambivalent about ATVI, but the article reflects due diligence, which I appreciate.

    We've heard the "most incredible and innovative releases evah!" arguments and hype every year, every quarter. It might be so, but there are still many considerations that come into play other than devoted love of the games.

    From my knothole, the macro conditions (consoles, economy, Europe, demographics, disruptive technologies, alternative goods and services, competitive forces, and the market place) in addition to performance relative to the past play a large part in this as well.
    May 11 06:01 PM | 1 Like Like |Link to Comment
  • World Of Warcraft Numbers To Decline Rapidly Again [View instapost]
    I was predicting a stabilization and even a slight increase in NA/EU subs based on user activity (29 April)

    http://bit.ly/KMZ4Vp

    I had no clue about China, but I didn't see any news indicating issues on NTES's part. I wouldn't have been surprised if your hypothesis had proven itself out.

    Regardless, Asian income fell by over 20% QoQ, but I haven't had time to review the numbers in depth yet.
    May 9 10:05 PM | Likes Like |Link to Comment
  • World Of Warcraft Numbers To Decline Rapidly Again [View instapost]
    Hmmm ;-)

    Activity levels will go down at the end of expansion, but the Annual Pass accounts for over approximately 1/3 of current NA/EU subscribers, if not more. These people have to keep paying even if they aren't playing, and even if they choose to spend their time with Diablo III. It will harder to gauge subscription levels based on relative activity going forward (a practice I've been doing for years now).

    It was a brilliant move, but one with trade-offs. 3rd quarter should prove to be interesting, when the Annual Pass expires for many.
    May 9 05:30 PM | Likes Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    I agree. "Wow-killer" has been a term used by forum participants to exaggerate or cast the argument in terms of all or nothing, black and white. No one is business really thinks in those terms. A slow, diminishing life of old age and thousand competitive cuts might be more apt.

    Sometimes its hard to see the forest for the trees. Revenues have remained relatively flat year over year, or even decreased slightly. In fact, peak revenues of around 4.8 billion on a non-GAAP basis were achieved in 2008 or 2009. While margins have indeed increased a great deal, the benefit of high margins in terms of growth diminishes once those margins are achieved without revenue growth. The current multiple seems about right for a modest ROI and/or real value over time, though it might not be the best choice relative to other market opportunities, but a higher multiple (at $16 to $20) would be harder to justify to myself without higher prospects for growth.

    Vivendi is paying Kotick to play defense. As a defensive stock in the short to mid term, this is a great play, but possibly at the risk of longer-term strategic shortsightedness. $500 million in gross profit on an annual basis is easy to achieve just by milking existing franchises. Kotick makes those goals over 5 years and stands to gain around $110 million in cash and stock, if not more. Of course, I can only speak to the goals and incentives that have been published and are public. Perhaps there are long-term strategic goals I'm not aware of.
    May 5 02:39 PM | 1 Like Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    Why not look at the actual agreement in the 4-K and 4 statements themselves and use facts to judge for yourself. It's public information after all.

    http://bit.ly/IiZFlv

    See the 4K on 3/19/2012 and the Form 4 on 3/19/2012.


    1/16th vests every month from 2013, till 2016, according to a 500 million gross profit condition, AFAICT. I'll let your other comments stand without comment.
    Apr 29 09:36 PM | Likes Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    "There is a reason that Bobby Kotick acquired (non-open market) over 6 million shares on March 14th (the day before the Diablo III release date announcement), and a reason why he's still holding them (both of which again are facts)."

    Yes, there is a reason, just as there is for every other corporate officer in America -- that there are specific windows governed by the SEC where trading can occur for officers in stock of their own company so that officers cannot unfairly benefit from insider information. Compensation and its timing is pre-determined by the Board of Directors.

    I sense a bit of emotionalism here and I doubt a further rational, objective discussion will ensue...let's revisit this in mid June, a month after earnings. It'll be interesting to discover where we are at then.
    Apr 29 05:28 PM | Likes Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    "For calendar year 2012, on a GAAP basis, we expect net revenues of $4.15 billion, product cost of 29% and operating expenses of 48%. We expect a tax rate of 26% for the year and have assumed a share count of about 1.15 billion, resulting in EPS of $0.63. Our GAAP results are expected to be down versus the prior year due to significantly larger deferrals from 2012 into 2013, driven by Blizzard's slate and growth of Call of Duty Elite." (4th Quarter Conference Call Q&a)

    The author said annual EPS of $.67. Quarterly conference company call says $.63. ATVI has a proclivity for giving conservative and low guidance numbers that will nearly always be beat.

    The more interesting and impactful issue on stock price over the longer term (if one is a longer term investor) probably will revolve around speculation about Vivendi's issues with improving its own valuation and how ATVI will be impacted.
    Apr 29 04:57 PM | Likes Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    I'm not here for your advice, but thanks.

    Please read the quarterly reports. Morhaime states exactly why subs dropped during those quarters, either in the reports themselves or during the conference call Q&A's. Continued supposition about pre-release hype of SWTOR as a factor for most sub level reductions doesn't jibe with other information out there and serves to add a speculative element, and therefore serves to diminish or weaken your general premise.
    Apr 29 04:21 PM | Likes Like |Link to Comment
  • Activision Blizzard: Pre-Q1 Results Analysis And What To Expect [View article]
    "Your analysis of WoW is off. Subs drops seem to be directly linked with EA's SWTOR's release."

    As is yours. I'll beg to differ with you.

    The largest fall-off of subs, particularly NA/EU subs, occurred in 1Q and 2Q 2011, well before SWTOR's release. There are many causes, but the primary one was the disappointment with the Cataclysm release by less-hardcore gamers. In Q3 2011, Blizzard attributed losses primarily to China.

    I'd think that investors are inclined to look for prospects for growth, not reactive stop-gap revenue replacements to stymie, reduce, or replace revenue loss.

    The author's opinion is his or her opinion, and I agree with his or her assertion that most of its movement is hype-driven. The stock will rise into earnings and then decline back into range if history is any guide. I disagree with the author about the subscription level loss on the NA/EU side. The annual pass has succeeded in stabilizing subscriptions levels and the recent promotions such as scrolls of resurrection might have actually served as a catalyst to temporarily increase levels over the short term.

    Of course the Annual Pass also presents the diluted effect of robbing Paul to pay Peter. Blizzard will not be receiving sales revenue from up to 1 million plus prospective Diablo III acquirers and in that light, 650,000 pre-orders just doesn't look that spectacular. I'm sure many have expectations that the Auction House in Diablo III will produce an offsetting revenue stream, but it's still speculative.

    Anyways, good luck.
    Apr 29 01:39 PM | Likes Like |Link to Comment
  • Activision's Not For Conservative, Long-Haul Investors [View article]
    @seekingbetatoyouralpha

    Thanks. Great name, btw. Good luck with your trading.
    Feb 29 11:29 PM | Likes Like |Link to Comment
  • Activision's Not For Conservative, Long-Haul Investors [View article]
    @StockJackel

    You make strong, valid points. The buyback and the dividend are very attractive points to this stock. I don't disagree that ATVI is still at a position of strength within the industry. Nonetheless, a case could probably be made that ATVI was stronger relative to industry in the past than it is now; especially Blizzard, which owned the MMORPG space for so long.

    Concerning your comment about high barriers to entry. I agree. Barriers to entry are still quite high, but I would argue not nearly as high as before. Just recently we've seen a new market entrant in Trion Worlds and the set of games it is producing, which would include Rift. Other game companies, in addition to EA, are broaching the MMORPG and RTS space as well. Over time, this affects pricing strength as well, and we've already seen the effects, where Blizzard took the nearly unprecedented step of cannibalizing future sales (up to 1.3 million units) of Diablo 3 to retain subscription levels.

    While Rift is not a WoW-killer, as SWTOR is not, the competition, in aggregate is having a competitive effect on the relative strength of WoW, it's pricing and relationship with customers, and other Blizzard products, and will possibly likely continue to have an effect of making Blizzard react to the market rather than the market reacting to Blizzard. Consumers now have more choice, and Blizzard probably underestimated this with their approach to the Cataclysm expansion.

    Nonetheless, if any company is positioned to weather the storm and come out even stronger, it is ATVI, leaps of faith notwithstanding.
    Feb 29 11:03 PM | Likes Like |Link to Comment
  • Activision's Not For Conservative, Long-Haul Investors [View article]
    Thanks for the article.

    I agree with the general premise, though there is no black and white. ATVI is an excellent pick for some reasons, and gives reasons for pause and avoidance for others. ATVI does make great products and has had a history of general profitability. It is a premier gaming provider that has morphed dramatically over time. I believe the stock price now more than accommodates these general arguments brought forth by the "fans". Regardless, it seems to make little sense to compare ATVI from a period prior to the spin off from Vivendi games and reverse stock split of 2008.

    Here are some counterpoints:

    1. ATVI is 60% owned and controlled by Vivendi. 6 of the 11 board members are Vivendi representatives. It's structuring provides some transparency problems in terms of what set of stakeholders the management is serving. If one would look at Vivendi's earnings, one would see that Vivendi claims 100% of ATVIs revenues as it's own.

    2. Increasing headwinds from a market analysis standpoint. In particular, there are seemingly lower barriers to entry for competition relative to the past: 1) There are a greater number of competitors and competing products coming to the fore. 2) There are disruptive technologies playing havoc with the traditional model of electronic games, such as social media for example. 3) There are increasingly other forms of entertainment competing for consumer dollars.

    3. Insider selling. Insider selling has become pronounced over recent history. In general, one has to wonder that if insiders don't believe money will provide better returns internally than in other areas, why should investors?

    4. Lack of revenue growth and market share growth in recent history. If one looks back over the last five years on a non-GAAP basis, total revenues have varied between 4.1 and 4.8 billion (actually 5 billion in 2008 I think). While revenue pie has been relatively stagnant, ATVI has actually consolidated its product offerings to a few big ones, leading to increased risk revolving around the fortunes of the company being overly dependent of one of these franchises. Relatively slow growth with increased risks should give conservative investors pause.

    5. Large cash balance. This hurts ROE and ROA numbers from a value standpoint. Why invest in having money sit in a bank when it could be used more effectively and efficiently in capital markets supporting productive endeavors? Either buy more productive capacity and compete in markets or return money to shareholders. At the same time, having that much of a cushion gives ATVI a great deal of stability.

    6. Deteriorating product strength in WoW. Not only are subscribers declining in the NA/EU regions, but there is a great deal of uncertainty with the Chinese market. That market is not only declining, but NetEase is playing it cool with any potential new contract and licensing agreement going forward in the next year. Over the last year or so, NA/EU subscriber loss has been greatly offset by new markets (such as Brazil and China), but these are lower margin revenue streams that are not "subscriber" oriented, but rather licensee-oriented.

    7. Sustainability of earnings growth. Earnings growth (EPS) has indeed been more than adequate in the last few quarters, but it hasn't been the result of market growth, per se, but rather from cost cutting. It remains to be seen whether this is sustainable.

    8. New IPs and products coming down the line give great reasons for hope, but their success is by no means guaranteed.

    9. COD continues to astound and set new records, yet I've never seen so much vocal discontent after the release of a game in this franchise before. To me, these are warning signs that the franchise might be dangerously close to being over-produced. Given that this segment now makes up a lion's share of the entire revenue mix for the company, it is a bit worrisome.

    Other comments, particularly the player fans, give credence to the "pros" of this stock, so I won't repeat them. For me, there are enough reasons to see if there are other options out there.
    Feb 29 07:51 PM | 3 Likes Like |Link to Comment
  • MW3, World Of Warcraft, Diablo III Key To Activision's Earnings And Outlook [View article]
    Selective in my stats?

    Are you suggesting I somehow selected that particular stat?

    Come on now, John. If anything, playing up numbers as "new record all-time sales" to December 16th and then ignoring any update on sales relative to what what being compared to before is being "selective in stats".

    A sudden fall-off is not certainly what anyone was expecting, nor what the executives were selling us. Let's be objective here, ok?

    Is this a cheer-leading article, fan blog, or can we recognize facts for what they are, as they come?
    Feb 10 05:06 PM | Likes Like |Link to Comment
  • MW3, World Of Warcraft, Diablo III Key To Activision's Earnings And Outlook [View article]
    "Creutz noted the surprising weakness of “Modern Warfare 3,” which launched in early November and was the industry’s best-selling title of the year.

    However, the game saw weaker January sales than its two predecessors, which were also launched in similar windows. Last year’s “Call of Duty: Black Ops” sold 750,000 units in January compared to just 386,000 units for “Modern Warfare 3,” according to Creutz.

    “We now expect ‘MW3’ to sell through slightly fewer units than ‘Black Ops’ across its lifetime,” he noted. "

    http://bit.ly/zxjgnE

    This issue was addressed in the Earnings Q&A by an adroit analyst as well.

    On Metacritic, MW3 is getting hammered. I don't typically pay it much mind, but if even a fraction of the vituperative dislike for the franchise is legitimate, I'd be worried.
    Feb 10 02:38 PM | Likes Like |Link to Comment
  • MW3, World Of Warcraft, Diablo III Key To Activision's Earnings And Outlook [View article]
    Well, beating earnings estimates for a quarter is one thing, but looking at relative performance over time and in the context of the broader market is another. Is ATVI doing better than 4.4 Billion (GAAP) and 4.8 Billion (non-GAAP) from annual performance in the past? What are the chances of outperforming over time if a large revenue stream is degrading with seemingly stop-gap alternative revenue models being thrown in to offset?

    Yes, in the context of single quarter, it's a beat. In the larger context, not so sure.
    Feb 9 03:32 PM | Likes Like |Link to Comment
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