Activision Blizzard, Inc. (ATVI)
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Activision Blizzard, Inc. (ATVI) Minjoo Kim, Keng Hoe Wong, Qing Yi Yu, Salta Muslim-Ali, Vincent Yu & Vrushank Vora. NME W11: Greg Yun. Introduction. Largest pure-video game developer/publisher Merger of Vivendi Games and Activision in 2007 Majority Owned by Vivendi SA N.A., Europe & Asia.

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Activision Blizzard, Inc. (ATVI)

Minjoo Kim, Keng Hoe Wong, Qing Yi Yu, Salta Muslim-Ali, Vincent Yu & Vrushank Vora

NME W11: Greg Yun


Introduction
Introduction

  • Largest pure-video game developer/publisher

  • Merger of Vivendi Games and Activision in 2007

    • Majority Owned by Vivendi SA

  • N.A., Europe & Asia




Thesis
Thesis

Industry:

  • Growing Chinese Market

  • Move towards digital revenue channels

  • Move towards non-casual games from casual games

    Company:

  • Consistent trend of quality “hit releases”

  • Ability to innovatively monetize revenue opportunities

  • Commitment to increasing shareholder value

    Quant: Analysts are undervaluing company due to

  • 4Q failure to meet GAAP revenue expectations

  • Cancellation of Guitar Hero



Industry trend global
Industry Trend (Global)

  • 52.9 billion (2009) / 86.8 billion (2014)

  • Projected CAGR of 10.6 Percent

  • Growth in industry

    • MMOG gaming

    • Online gaming

    • Mobile gaming

Fig. 1 Media Spending Growth

Outlook by Segment from PwC


Industry trend regional
Industry Trend (Regional)

  • Current Generation Console - 23% Growth

  • First-Person Action Genre - 29% growth N.A./Europe sales

    • Wii/Handheld Devices – Decrease in Sales

  • Top 10 titles - 37% of U.S. sales

  • Digital Distribution – 14% Growth in N.A./Europe sales

Fig. 4 2010 Game Growth

by Segment by Newzoo

Fig. 2 2010 Revenue Breakdown

of Industry from Newsweek


Industry trend china
Industry Trend (China)

  • 26% increase in Chinese gamers accounted for 61% increase in 2009 global online game revenue

  • 20.9% CAGR of online game market through 2014

  • MMOGs account for 77% of online revenue growth

  • Piracy is barrier to entry



Revenue sources channels
Revenue Sources/Channels

  • Subscription/Licensing: 31%

  • Product Sales: 69%

  • Digital Sales: 30% Overall / 20% Growth

  • International Operations: 46%

    • Asia 6% Overall / 32% Growth

Fig. 5 ATVI Revenue Growth in 2009 Year-End Data


World of warcraft
World of Warcraft

  • 12 million subscribers (monthly US / hourly China) / Value Added Services

    • $3.5 million in one day on a virtual horse

  • WoW: Cataclysm was fastest-selling PC game ever

Fig. 6 MMOG Breakdown May 2008

Fig. 7 MMOG Subscriptions 2011


World of warcraft china
World of Warcraft (China)

  • 5% of China’s $3 billion MMO market

    • 1.5 million paying customers in first month

    • In 2008, one of three MMOs in China with over 1 million peak computer users (PCU)

  • 5.5 million Asian Users /2.6 million PCU

  • 55% Royalty - NetEase


Market strategy
Market Strategy

  • Consolidate energies on high-margin hits

    • WoW & CoD – 62% of Revenue

    • CoD Downloadable Content – $21 million in 24 hours (Record for Xbox Live)

  • Expand in China

    • WoW: Cataclysm

    • CoD: China F2P

  • Digital Growth

Fig. 8 US MMOG Breakdown May 2010


Competitive advantages
Competitive Advantages

  • Quality Assurance with Big Recognizable Hits

    • #1 Publisher in N.A. / Europe

    • CoD: Black Ops was #1 Title Worldwide: $1 billion revenue

    • 3/5 Top PC Titles in N.A./Europe

  • In-line with Industry Trends

    • 20% Digital Growth / Only 30% of total revenues

    • Market Leaders in non-casual gaming titles

    • Console Game Leader

  • Crowd Effect

    • Online Community in Battle.net




Future releases
Future Releases

2012

2012

2012

2011

2012


Recent news
Recent News

  • Canceled Guitar Hero/Tony Hawk Series

    • Laid off 500 Employees

    • Shares dropped 8% on February 10th

  • Non-GAAP EPS of 53 cents beat 4Q expectations

    • Year End GAAP EPS increased 33 cents

    • Year End Non-GAAP EPS Increased by 15%

    • Quarter End GAAP EPS dropped 20 cents

    • Year End Non-GAAP Revenues 20% Growth


Shareholder strategy
Shareholder Strategy

  • 2009: $1.2 billion in shares repurchased

  • 2010: $1.5 billion in shares to be purchased

    • Three-Year Total – $3.7 billion

  • Cash Dividends increased by 10%


Portfolio investment risk factors
Portfolio/Investment Risk Factors

  • Deterioration of Economic Condition

  • Controlled Company

  • Lack of Franchise/Hit Diversification

  • GAAP defers increasingly online-generated revenue

  • Current tech holdings

    • PWRD: Perfect World


Company thesis
Company Thesis

Consistent trend of quality “hit releases”; ability to innovatively monetize revenue opportunities, especially in alignment with the current industry trends; and commitment to increasing shareholder value; demonstrate that ActivisionBlizzard to be a consistently successful leading innovator in the gaming market.











Summary
Summary

  • Company strength is aligned with industry trends

  • Beginning to capitalize on tremendous market potential in China

  • Leading innovator in the market; consistent history of hits

  • Analysts don’t believe stock can overcome Guitar Hero cancellation



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