Sold: Activision Blizzard

By Travis Johnson, Stock Gumshoe, March 1, 2011

I have closed my personal position in Activision Blizzard (ATVI). I would argue that this is still the strongest of the video game publishers, and the valuation is reasonably fair for a large cap stock like this, but the stock performance has been very tepid and earnings growth does not appear to be around the corner.

I underestimated the importance of casual gamers to Activision Blizzard, and I think that although they should continue to do well with their core Warcraft and Call of Duty franchises, I’m also afraid that the fact that they’re cutting off future development of Guitar Hero means they are relying more and more on the intensive gamers and no longer have a “tentpole” franchise to build around for casual games. Writing off this large product line for them is worrisome in that it means still more reliance on Call of Duty, which is undeniably a huge hit but has to hit a wall at some point — even huge hits do not go on at blockbuster rates forever. The stock should not fall drastically from here, given their level of profitability and predictable revenue from the subscription side (Blizzard and their World of Warcraft games), but I don’t see any reason for them to be a strong grower this year or in the near future, so I’m selling my shares.

ATVI has also been an “idea of the month” stock in this space, about two years ago, and is essentially flat over those two years. Being flat and rather predictable might sound pretty nice over a tumultuous couple of years, but that’s against an increase of about 50% in the S&P500 over that time, so it’s certainly been a very weak performer. Everyone has to choose what to do with their own investments, of course, but I’m choosing to sell my shares now.

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