Activision Blizzard (ATVI)

In its most recent earnings release on February 7, 2008, Activision reported an 80% increase in revenue. It was the best quarter in the company's 29 year history. Call of Duty 4 was the best selling video game world wide of 2007 selling 7 million copies. The report also highlighted further opportunities for growth in American and especially European markets. Further, sequels to Guitar Hero and Call of Duty have been confirmed for release within the current fiscal year

Two recent events piqued my interest in Blizzard again. The release of a full fledged sequel for StarCraft called StarCraft II is expected to happen just ahead of the holiday season in early December 2008 and Vivendi merged its interactive entertainment division (which includes Blizzard) with Activision to create a separate public company called Activision Blizzard.

However, Blizzard is famous for delaying the release of its games (does software of any kind ever ship on time?) and has at times suspended development altogether. Activision is another game company that holds its own in the game industry with popular releases like Guitar Hero, Call of Duty and the Spider-Man games just to name a few. Not only are the two companies respected leaders in the video game industry, Blizzard will benefit from Activision's expertise in the console area. Blizzard primarily makes games that are played on computers and its attempt at hiring a couple of external studios including one called Swingin' Ape Studios to develop a game called StarCraft Ghost for consoles such as the Playstation 2 and XBox did not come to fruition. Starcraft Ghost was highly anticipated by Blizzard followers including yours truly but after numerous delays and the acquisition of Swingin' Ape Studios, Blizzard decided to postpone the game indefinitely. With this new partnership with Activision, there is a chance we might see Blizzard franchises like Diablo, StarCraft and Warcraft on the new generation consoles.

Another stock in our portfolio that has taken a hit but the business continues to do great is Activision Blizzard (ATVI). Even though Activision is in the recession proof gaming industry the stock has dropped significantly over the last three months along with industry leader Electronic Arts (ERTS). October video game retail sales increased 18% year-over-year and software sales jumped a whopping 35% to $696.8 million. Activision outperformed analyst expectations for earnings and revenue when it reported third quarter results earlier this month. The latest version of the Guitar Hero franchise was sold out upon launch and the highly anticipated World of Warcraft expansion pack Wrath of Lich King, set a sales record by selling 2.8 million copies within the first 24 hours after launch in mid-November.

Activision shed nearly 30% of its value since we added it to our portfolio in September, while Electronic Arts is down more than 60% over the same time period. A 42,500 share direct purchase for over a million dollars by Electronic Arts CEO John Riccitiello in early November failed to inspire any confidence in the stock. In light of Activision's plan to buy up to $1 billion of its own stock and the record breaking sales of its games, the stock is currently at the top of my conviction list.

Activision Blizzard owns some of the most popular games in internet history.

To name a few:

World of Warcraft, Diablo, Starcraft

Starcraft was released in the late 90's and is still a heavily popular game for Real Time Strategy enthusiasts. It is so popular in Korea that there are "Starcraft Celebrities" that get treated like rockstars in the U.S and huge competitions are celebrated annually.

Diablo Is another franchise that was released around 2000 (I don't have the specific date on my hands right now) and is still a popular game to this day.

A Diablo 3 preview was just released this year and its appeal is outstanding. I'm betting this will be another very successful game for Blizzard.

That's not the only thing new coming out, they're also releasing Starcraft 2, which will also be a mega-hit in my opinion.

Not to mention that their subscriber-based game, an MMORPG, World of Warcraft takes in millions of dollars a month from the $15 subscription for each account.

A World of Warcraft expansion is launching later this year which should boost their earnings just on the purchase of the expansion from the thousands of players that participate in the World of Warcraft.

There are also rumors of another MMORPG that will be announced at Blizzcon this year.

Overall, there are a ton of things being released by this company and all of them are sure-hitters due to the fan-base, and overall quality that is produced from this company.

An often overlooked IP that Blizzard Activision has is their BattleNet platform. Although not currently widely-monetize (WOW has a subscription model), it is one of the best in class platform that could potentially be gold mine if they decide to open up to 3rd parties to run other publisher's online games. Think of Amazon leasing their "cloud computing" or their whole backend infrastructure for small businesses.

http://www.geek.com/articles/games/activision-sued-by-38-infinity-ward-employees-for-unpaid-royalties-20100428/

Activision's highest earning game series Call of Duty earned over $500mil in 5 days when it was launched. Activision has "sacked" the 2 lead developers in charge of that studio just days before Activision was due to pay them bonuses.

The 2 developers are now suing Activision.

The 2 devs has set up a new gaming business, with many staff leaving Activision to join this new company.

38 staff from that same studio are suing Activision for taking too long to pay them their earnings from old game titles. Activision appear to be using this to force workers to work on the next title or not get paid.

Activision share price may suffer if their biggest hit becomes a low quality game that customers don't want to buy.

They have the new 5 day sales record, and analysts put a conservative estimate of $1B in sales once the dust settles...hard to believe one video game can make a BILLION dollars. If we could take all the earnings and multiply it by 800, we could pay back China!

As the recession subsides video games sales will increase. Retail buying patterns have turned positive and this should follow through to the end of the year. Stock is currently trading at $11.00, there should be a pullback before the summer starts which will provide a nice buying opportunity, or a investors can sell a June 09 put @ 11 for .90 and reduce the cost basis to $10.10

Activision is aggressively aiming to be the number one video game maker in the world. Its greatly increasing revenue stream, due to such smash hits as Guitar Hero and Call of Duty 4, and its impending merger(mid 2008)with Vivendi Games, AKA Blizzard the maker of World of Warcraft, confirm and underscore Activision's grip on the rapidly growing gaming world.

Gaming itself is expanding its audience and games like Guitar Hero and World of Warcraft are on the forefront of this movement. It is reaching out to "non-traditional" gamers such as women and adults while reinforcing the culture with "traditional" gamers. World of Warcraft is another game changer in that it is redefining the gaming experience. It has just surpassed the 10,000,000 mark in active monthly subscriptions of $15 each. World of Warcraft, or WOW, is now more than a game. It is also a social network in that you can play with others online and meet people from around the globe.

In China there are many Chinese