With shares of Activision Blizzard (NASDAQ:ATVI) trading at around $15.57, is ATVI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
Has Starcraft II: Heart of the Swarm been a success so far?
If you look at ratings on any site that offers gaming reviews, the answer is yes. While Amazon.com Inc. (NASDAQ:AMZN) might not be a gaming-specific site, it receives the most reviews from the widest audience. At Amazon, StarCraft II: Heart of the Swarm ratings are impressive. It’s rated a 4.5 of 5. Here's the breakdown of the ratings:
5 Stars: 146 Gamers
4 Starts: 31 Gamers
3 Stars: 11 Gamers
2 Stars: 10 Gamers
1 Star: 16 Gamers
Based on these numbers, approximately 88 percent of gamers are at least satisfied with the game, and 68 percent of gamers gave it the highest rating possible. These are excellent numbers. Activision Blizzard could make a game that offers more excitement than Space Mountain and more suspense than an Alfred Hitchcock movie, but there would still be haters. That's why looking at a wide audience is important. It offers an accurate gauge for the quality of the game. If the quality of a game is good, then it has the potential to lead to increased Activision Blizzard gamers as well as increased revenue.
For those gamers (or investors) who want to look ahead, below is a quick and intriguing teaser for Call of Duty: Ghosts.
What did you think of the teaser?
Battle.net is a second home for many hardcore gamers. The following quote is on Battle.net and indicates the company's goal: "Blizzard Entertainment's vision for the new Battle.net is to unite all Blizzard gamers under the banner of a single, powerful, and advanced online gaming service."
According to Alexa.com, traffic at Battle.net has been average at best over the past three months. Pageviews-per-user has declined 2.72 percent and time-on-site has declined 4 percent. However, the bounce rate has declined 4 percent, which indicates that the content being offered is interesting enough for more people to stay on-site than in the past.
Now let's get to some different types of numbers. Below is a chart comparing basic fundamentals for Activision Blizzard, Electronic Arts Inc. (NASDAQ:EA), and Take-Two Interactive Software Inc. (NASDAQ:TTWO). Activision Blizzard is more impressive than its peers in almost every fundamental category.
| ATVI | EA | TTWO | |
| Trailing P/E | 14.40 | 72.81 | N/A |
| Forward P/E | 15.18 | 15.89 | 14.79 |
| Profit Margin | 24.38% | 2.58% | -2.43% |
| ROE | 11.09% | 4.15% | -5.27% |
| Operating Cash Flow | 1.52B | 324.00M | -4.57M |
| Dividend Yield | 1.30% | N/A | N/A |
| Short Position | 1.80% | 5.90% | 18.50% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Activision has been a strong performer year-to-date.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| ATVI | 6.86% | 48.63% | 28.02% | 58.70% |
| EA | 29.45% | 55.30% | 53.51% | 35.03% |
| TTWO | 3.26% | 43.69% | 34.30% | 47.03% |
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At $15.57, Activision Blizzard is trading above its averages.
| 50-Day SMA | 14.79 |
| 200-Day SMA | 12.99 |
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for Activision Blizzard is stronger than the industry average of 0.30.
| Debt-To-Equity | Cash | Long-Term Debt | |
| ATVI | 0.00 | 4.62B | 0.00 |
| EA | 0.25 | 1.68B | 559.00M |
| TTWO | 0.57 | 402.50M | 335.20M |
E = Earnings Have Been Steady
Earnings and revenue have consistently improved on an annual basis.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 3,026 | 4,279 | 4,447 | 4,755 | 4,856 |
| Diluted EPS ($) | -0.11 | 0.09 | 0.33 | 0.92 | 1.01 |
When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 1,172 | 1,075 | 841 | 1,768 | 1,324 |
| Diluted EPS ($) | 0.33 | 0.16 | 0.20 | 0.31 | 0.40 |
Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Conclusion
Activision Blizzard is by far the best company in this group. Margins are impressive, cash flow is strong, and revenues have been improving. This isn't to say Activision Blizzard is the ideal investment in the current economic environment, but it should be the best option in this group.
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