Vtrade Proposes to SELL Activision Blizzard, Inc. (NASDAQ: ATVI)

Activision Blizzard, Inc.

NASDAQ: ATVI

COMPANY DESCRIPTION

Activision Blizzard, Inc. develops and distributes content and services on video game consoles, personal computers (PC), and mobile devices. The company operates through three segments: Activision Publishing, Inc.; Blizzard Entertainment, Inc.; and King Digital Entertainment. The company develops, publishes, and sells interactive software products and entertainment content for the console and PC platforms through retail and digital channels, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies; and offers downloadable content. It also maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. The company serves retailers and distributors, including mass-market retailers, first party digital storefronts, consumer electronics stores, discount warehouses, and game specialty stores through third-party distribution and licensing arrangements in the United States, Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. was incorporated in 1979 and is headquartered in Santa Monica, California.

RECOMMENDATION

We rate Activision Blizzard, Inc a SELL @ US $ 81.

Below are the basic reasons to recommend this stock as a SELL:

·       Activision’s biggest problem is that it depends heavily on a handful of franchises namely Call of Duty, World of Warcraft, Skylanders and Destiny that make up over 70% of its revenues. Underperformance of any title is bound to negatively impact revenues. Notably, the company’s majority of subscription revenues are also derived from players who sign up to play World of Warcraft.

·       Video games are hit driven. Though Activision has a powerful line-up of games that can be repeatedly upgraded, there is no assurance that a game will be a hit. We believe the underperformance of any title has the potential to drastically alter financial performance. The video game business is highly cyclical and heavily dependent on time-to-time upgrade/introduction of new game software and hardware systems.

·       The video game publishing industry is intensely competitive. The resultant pressure could tell on margins and lead to market share losses. On the other hand, continued investment in the digital market may also hurt its profitability in the near term.

·       Activision Blizzard has long been eyeing the lucrative e-sports market but not be able approach the targets and make productive acquisitions capture such huge industry, while their competitors  like EA working on such goal very efficiently. E-sports refer to live video game tournaments. With continued increases in viewership, corporate sponsorships and growing media coverage, e-sports is here to stay.

·       The company had over 352 million monthly active users (MAUs) at quarter end, a decrease of 5.9% sequentially. Blizzard’s revenues of $489 million declined 13.6% from the year-ago quarter due to investment in initiatives like Overwatch League. Blizzard had 37 million MAUs, a decline of 2.6% sequentially.

·       Revenues from mobile and ancillary (31.7% of total revenues) increased 5.7% year over year to $521 million. However, revenues from console (34.4% of total revenues) and PC (27.5% of total revenues) declined 0.5% and 11.2% respectively, year over year to $565 million and $451 million.

·       ATVI’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. For now, may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing.

BALANCE SHEET & CASH FLOW

As of Jun 30, 2018, Activision had $4.9 billion in cash and cash equivalents, compared with $5.2 billion as of Mar 31, 2018. Activision exited the quarter with long-term debt of $4.394 billion.

Operating cash flow for the quarter was $9 million while free cash flow was negative $21 million.

LAST EARNINGS

Activision Blizzard reported second-quarter 2018 non-GAAP earnings of 62 cents per share, which surpassed the Consensus Estimate of 36 cents. Earnings increased 12.7% from the prior-year quarter.

Net revenues (including deferrals) increased 0.6% year over year to $1.6 billion and beat the Consensus Estimate of $1.4 billion.

NET INCOME HISTORY

YEAR	NET INCOME
2014	817M
2015	881M
2016	860M
2017	273M

Disclaimer:

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.