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OneCasualObserver

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  • 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
  • Here's the White House math behind why "tax reform" can't replace all the income from letting the Bush tax cuts for the rich expire: Limiting a cap in deductions to incomes over $250K leaves only $800B in revenue; phasing in a cap to avoid a "cliff" reduces revenues to $650B; excluding the charitable deduction reduces it to $450B. That's why the likeliest outcome is a hybrid approach that combines an increase in marginal tax rates with a cap in deductions. [View news story]
    " Show me one country who through spending cuts has grown the economy?"

    South Korea got hit hard by the Asian crisis and had spending curtailed hardcore in order to receive aid through the IMF. Look where they are at today. A perfect example of what getting one's fiscal house in order can do.
    Nov 30 02:22 AM | 2 Likes Like |Link to Comment
  • Rumors Around Electronic Arts Should Shine Spotlight On Activision [View article]
    Suppose I were to tell you that this year I'll make $150,000 and next year I'll make $110,000 with margins of 10% on net income both years. If I beat my expectation and make $120,000, am I doing better over time? I am interpreting that I would be by the article's logic. Why don't banks believe that?
    Aug 17 06:11 PM | 2 Likes Like |Link to Comment
  • Success On Sale: Activision Blizzard [View article]
    Who in the their right mind would want to own EA unless one is speculating? Price to tangible book is like 43. All of these players are playing into strong market force headwinds. Of course, to each their own with their own money.
    Jan 9 02:09 AM | 1 Like Like |Link to Comment
  • Success On Sale: Activision Blizzard [View article]
    I agree, Charles. Well stated.

    ATVI has had a premium built into the price predicated on stable and even growing WoW subscriptions for several years...

    Kotick reset expectations for 2012 and beyond after the stellar 2011 year when both WoW and the COD franchises were clicking because the comps would have been nearly been impossible to beat. So reading about "beating expectations for several quarters, or even years, in a row is a bit misleading.

    ATVI is a great company with great fundamentals, but market/industry conditions and technical factors appear to offset a great deal of that. The large amount of goodwill bothers me as well and ATVI stopped its share buybacks recently.
    Jan 8 03:37 PM | 1 Like Like |Link to Comment
  • Value Play: Activision Blizzard [View article]
    I don't agree that this is a value play stock, thank you very much. ROI, ROE, and ROIC, standard measurements for value stocks, are all way to low.

    "Zacks" mentions price-to-book as a favorable metric, but doesn't mention the (7 Bill+?) of goodwill.

    "Zacks" also refers to meeting and surpassing expectations in recent quarters, but doesn't recognize the "expectations reset" that has occurred since the phenomenal 2011 earnings period.
    Oct 2 05:33 PM | 1 Like Like |Link to Comment
  • Why I Left My Cheerleader Pom-Pons At The Door And Sold Activision Blizzard (Part 2) [View article]
    Well done, SJ. The due diligence appreciated, once again.

    ATVI is indeed the seeming battlefield of behavioral economics and rational expectations.
    May 17 01:48 AM | 1 Like Like |Link to Comment
  • 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
  • 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
  • Expect Surprise From Activision's World Of Warcraft Numbers [View article]
    Historically, the stock is rather range-bound. Prior to the recent new high leading into earnings release for last quarter, the range was typically bound to 10.50 and just north of 13.50.

    There is a lot of momentum play in the stock around earnings. My observations is that the stock price typically rises into earnings announcements and then falls, facilitated by market makers playing options.

    Given this, I'm not sure if it is such as good idea to buy the day before the earnings announcement. But of course, historical record is no guarantee of future performance. So, to each his own.

    You can of course check and validate these observations yourself. Perhaps you'll find things I haven't observed from my knothole.
    Jan 24 10:28 PM | 1 Like Like |Link to Comment
  • Expect Surprise From Activision's World Of Warcraft Numbers [View article]
    Upside potential is limited, downside potential with lots of unknowns is much larger.

    Blizzard has one of the most dedicated (and addicted) fanbases around, an enviable position, and one that gives Blizzard a great deal of leverage and strength against new entrants into the market.

    Nonetheless, there is no question that the competitive landscape is becoming tougher and more crowded, which invariably reduces pricing power across the industry and reduces potential for high margins to the degree that were enjoyed in the decade. The fact that Blizzard was willing to cannibalize and offer up Diablo III to WoW players for free to retain long-term retention should speak volumes about the changing marketplace.

    A key Activision-Blizzard strategy has been to create alternative revenue streams with digital in-game services and products. In the short term, this has been successful and has more than offset losses in subscriptions, but it still begs the question of whether it is a sustainable strategy if it is at the expense of subscriber growth, much less retention.

    Activision has lost a significant share of NA/EU subscribers since January 2011. The article itself categorizes these as high margin subscriptions.

    In all likelihood, the NA/EU subscriber loss has been staunched to a large degree over the last quarter, but millions of NA/EU players still have yet to return.
    Jan 20 04:14 PM | 1 Like Like |Link to Comment
  • Call Of Duty Can't Save Activision [View article]
    Revenues and operating profits from WoW have been decreasing over time. WoW is NOT the dominant MMORPG it once was, particularly in NA/EU where subscription levels are half of what they once were. Nothing has reversed the ongoing long-term trend.
    Dec 19 07:47 PM | Likes Like |Link to Comment
  • Why World Of Warcraft Will Drag Activision Blizzard's Earnings Down [View article]
    Why are you convinced Titan will be a huge success? Launch success like SWOTR or Rift, or long term? Do you even know what kind of financial model Tital is predicated on?
    Oct 20 08:54 AM | Likes Like |Link to Comment
  • Value Play: Activision Blizzard [View article]
    Yep.
    Oct 9 09:57 PM | Likes Like |Link to Comment
  • Look Out Below, Activision Blizzard: Finally A True WOW Killer [View article]
    I'm sure Activision is seeking to expand internationally. But don't neglect the fact that pricing power is substantially lower in China. They don't buy boxes, they don't "subscribe" in the NA/EU sense, and there are revenue sharing/license agreements with NetEase that ultimately will be reflected in the amounts of revenue that ATVI can claim.


    Sep 28 05:56 PM | Likes Like |Link to Comment
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