Let’s start with the bad news this week. Activision Blizzard (ATVI) is a pretty reasonably valued company, valued at about 20X forward earnings now and with a predicted earnings growth rate (by the average analyst) in the 10-15% neighborhood. It’s one of the dominant game publishers in the world, it’s a large company (market cap over $50 billion), and it owns some of the iconic franchises in video games, including Call of Duty, Overwatch, Candy Crush and World of Warcraft.
It also hit my stop loss level this week, more fallout from the fact that they’ve apparently (or allegedly, I guess) been subjecting their employees, especially women, to the kind of “bro culture” or “frat boy” workplace harassment that has stereotypically been prevalent in the tech industry, particularly among video game studios… and the protests from employees and subsequent regulatory attention that has been escalating tell us that they’ve done a terrible job, at least so far, of proactively changing that work culture.
Will they blow up their portfolio of gaming brands because they’re unable to maintain a reasonable office work culture? That seems very unlikely, and they have been bringing in new HR and leadership folks and making encouraging statements of late, but there is at least some real risk — video games are creative content, not so different from a TV series or a Hollywood movie (and in many cases, the big “tentpole” releases like Call of Duty cost more to make than the priciest Star Wars or Marvel film), and having a hit is not ever guaranteed. If the best creators leave, over time, the content suffers. I think it’s unlikely that Call of Duty or Candy Crush becomes instantly unpopular because of this, there are so many fans of those games that even some social media campaigns for a boycott seem unlikely to make a real impact, but I also don’t know where the tipping point hits between now-questions fandom, and stepping away because of a company’s behavior. We’re not there yet, but we have to assume that there’s some risk here, thanks in part to Activision Blizzard’s hamfisted response to complaints even a few months ago, even if the odds of a horrible outcome for investors are probably very low.
So here’s what I think: I believe the odds are good that this will eventually work out fine ...