Last Time I wrote about Starbucks (SBUX) and also Apple (AAPL)
Check Here To Read It
Today, it'll be about a lovely company called Activision Blizzard (ATVI) -- Most people know them as the Call of Duty guys.
I have to admit - I've pitched Activision Blizzard before and yes, both times I've pitched the stock -- the people I pitched it to decided to buy it. It was a small amount -- only 100 shares which represented about only 2-3% of their portfolio. If you think that because I've pitched the stock before, I will be biased in this blog, then I'll see you in the next blog! If not, then READ ON!
Activision Blizzard Leads (In terms of Market Cap)
The two big publicly traded gaming companies in America are Electronic Arts (EA) and Activision Blizzard (ATVI) -- Take-Two Interactive Software (TTWO) is also publicly traded, but they have a market cap of about 1/10 of EA's and ATVI's. But Activision handles things differently from EA. Activision's cash cow has always been WoW (at least since Activision merged with Blizzard in 2002, which closed December 2010)
Both Activision and EA have similar revenue over the past two years. It's been about $4.5B. However, this'll change this year. EA expects revenue to be about $4.9B while Activion expects revenue to be about $6.1B. Now, this might sound like a huge jump for Activision, but it's actually not. Activision might actually have less revenue in 2016 then it did in 2015. However, Activision acquired a new company for about $5.9B -- Known as KING. Know, I don't know all the details -- because I got a little lazy and only skimmed through their annual report. About $2B is likely to come from their newly acquired company KING! Which means that if KING's business brings in about $2B in revenue -- that's only $4.1B without KING.
But that doesn't mean they are going down the drain. Analysts who watch ATVI believe that the next Call of Duty is expected to be one of the best selling Call of Duty's! If they are right, then Activision will have another year to live! And the stock will go up and up and up. Personally, I don't think it's a worthwhile investment at $39 -- until they can prove to me that have covered their bases. 80% of Activision's profits comes from Call of Duty, World of Warcraft, and Skylanders -- World of Warcraft being the most profitable by a lot!
This post is a bit shorter than my post about Starbucks -- But as an investor I think people should be cautious when investing in Activision Blizzard. I don't believe they'll go out of business nor do I believe that they will have trouble using the ship out of Call of Duty to make them a decent amount of money over the next few years. But long term -- 10+ years -- I don't know where they stand. They are doing a great job diversifying but I also don't know if mobile gaming is as big of an industry most analysts believe it to be.
Recommendation
Woah, this is a knew one, you didn't make a recommendation for Starbucks. Dammit, and I would have gotten away with it if it wasn't for those meddling kids. :(
With the given information, I think investors should be cautious before investing in Activision Blizzard.
For 2 reasons
1. The stock has more than doubled in the last year -- it's likely to have a 10% to 15% correction in near term.
2. World of Warcraft won't be a cash cow forever -- they need a new cash cow and Call of Duty games have not been doing the best for the last few years. If the next Call of Duty really is amazing then I will blog about how I was wrong. But until then, I'll stand by my opinion.
No comments:
Post a Comment