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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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