Analysis: Activision Blizzard Being Added to the S&P 500

Activision Blizzard, Inc. is being added to the S&P 500 Index on Friday after the close, in a move that solidifies the company's dominance as a 3rd party developer.

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Activision Blizzard, Inc. is being added to the S&P 500 Index on Friday after the close, in a move that solidifies the company's dominance as a 3rd party developer.

Activision Blizzard has a market capitalization over $20 Billion and continues to crank out mega hits with their diverse gaming franchises. The company will replace Pall Corporation in the Index and will now have increased institutional ownership by many fund managers who mimic the flagship stock market index. ATVI is up over 7% after-hours, but I would not chase this move. The stock trades at over 18 times forward earnings and at a premium to its growth rate.

Additions to stock market indices can also be viewed as a kiss of death for some companies as they become far more correlated to broad market moves. In a world where stock market futures trading determines individual stock movement, this addition to the S&P 500 may not be completely good news. It does validate the company's business model and is a credit to the hard work of everyone at the Activision Blizzard. 

Game development is now a multi-billion dollar industry and the stock market is finally wising up to this fact that video games companies can be great investments. I want to reiterate that readers should not chase this after hours move in ATVI shares as I believe that the company is now priced for perfection with a dividend yield below 1% and a premium price-to-earnings ratio. The bar has been raised for Activision Blizzard, Inc. and it remains to be seen if they can continue their outperformance.  ATVI has risen 5600% over the last 15 years.

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

From The Chatty
  • reply
    August 27, 2015 3:02 PM

    Asif Khan posted a new article, Analysis: Activision Blizzard Being Added to the S&P 500

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      August 27, 2015 3:05 PM

      You just want all the shares to yourself, I know it to be true!

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      August 27, 2015 3:05 PM

      5600% seems like a decent return to me.

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        August 27, 2015 3:12 PM

        Exactly, but I wonder how much more is left in the tank. WoW numbers are fading, COD is losing its luster, but hey they got Skylanders and Destiny and a great track record. I just think after this latest run that their is better value elsewhere in the gaming space.

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          August 27, 2015 3:32 PM

          Hearthstone is adding a non trivial amount of recurring revenue and they haven't really amped up monetization options yet (ie non gameplay affecting cosmetics like avatars, play mats, card backs, sound packs, etc)

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            August 27, 2015 3:35 PM

            I'm sure HOTS will probably do OK as well.

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              August 27, 2015 6:04 PM

              I'd put Overwatch on that list too. Even though WOW isn't in it's prime, it's still turning a massive profit.

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                August 27, 2015 6:12 PM

                Overwatch is very much an unknown, HotS has lots of potential but is still in its infancy with 2 behemoths ahead of it. Hearthstone is well established as the genre leader (and creator in many ways for a lot of its customers) and has a user base already poised to bring in even more than it's already doing (likely around $100 million/year), is one of the top Twitch games every day, etc. And its closest analogue has been printing money for 20+ years so there's reason to believe the concept has staying power even as they watch WoW decline.

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      August 27, 2015 3:10 PM

      Asif, I have to say that this sort of reporting is unique amongst the gaming websites I frequent. Did you want to do a video version of this, perhaps even a question and answer series?

      You might want to "dumb it down" for investing neophytes since some of our audience may not know some of the terminology that you are using.

      Also, it's interesting that you mention that listing in the S&P 500 means the stock gets thrown into index funds and all sort of other non-company related forces!

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      August 27, 2015 3:13 PM

      I don't understand a sentence in that article.

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      August 27, 2015 3:18 PM

      Some definitions for people:

      Earnings per share (EPS):

      This is the total earnings of the company divided by the amount of shares of the company outstanding

      Price-to-earnings multiple:

      This is a way to compare share price based on earnings. You divide the share price by the EPS to calculate this.

      Market Capitalization:

      This is the total value of the company. It is calculated by multiplying the share price by the amount of shares outstanding.

      Growth rate:

      This is how fast the company's earnings are growing year over year.

      Dividend yield:

      This is the per share dividend divided by the share price.

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        August 27, 2015 3:28 PM

        ATVI?

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        August 27, 2015 4:05 PM

        I was trying to compare P/Es to the rest of the industry, is this a useful step of research? I see EA has a higher P/E at 22, but take two and zynga is blank, is that because they have losses? or dont report some data? Maybe this industry doesnt have a large enough sample siz.e

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        August 30, 2015 10:54 AM

        Another definition you need right now for the S&P 500:

        Death Cross:

        The 50 day simple moving average falls below the 200 day simple moving average.

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      August 27, 2015 3:54 PM

      Great article - showed it to some of the guys on my team.

      I know there aren't a ton of news bits along these lines but that is a great write up! 2nd to last line is classic.

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      August 27, 2015 3:59 PM

      Hey guys! I'm an investor in Activision Blizzard now, AMA.

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        August 27, 2015 4:01 PM

        Can I touch you?

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          August 27, 2015 4:01 PM

          What's your P/E ratio?

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        August 27, 2015 4:08 PM

        How does it feel to be partly responsible for the stagnation of the FPS genre?

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          August 27, 2015 4:12 PM

          It would be pretty hard to measure my individual contribution, but I'd have to say that you could wipe CoD off the face of the Earth and FPS wouldn't be in a much different situation. The studios that make FPS games have not been bringing anything new lately, and there are few new entrants. That's the real problem.

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        August 27, 2015 4:11 PM

        Can you unban my WoW account?

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          August 27, 2015 4:14 PM

          I'd bring it up at the next shareholder meeting, but I don't think I get invited as a very minor owner of an ETF that tracks an index that contains ATVI.

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            August 27, 2015 6:11 PM

            then you're not an investor. you're just an investor of the father's brother's nephew's cousin's former roommate of ATVI.

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              August 27, 2015 6:25 PM

              Sick Spaceballs reference...

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                August 27, 2015 6:51 PM

                google search copy and paste ftw!

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              August 27, 2015 7:15 PM

              This is only technically true, and therefore not really important to the topic at hand.

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                August 27, 2015 8:17 PM

                technically correct, the best kind of correct.

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        August 27, 2015 4:14 PM

        How tight are you with Bobby Kotick?

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          August 27, 2015 4:15 PM

          He and I go way back to earlier in the day when this article was written.

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        August 27, 2015 4:16 PM

        Will you be participating in the next earnings call?

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          August 27, 2015 4:40 PM

          I'll try to get in some good questions... I'm particularly interested in what kind of effect the quick expand meta in SC2 is going to have on the EV/EBITDA ratio.

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        August 27, 2015 4:32 PM

        peeeeeee

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          August 27, 2015 4:40 PM

          Let's try to keep this professional, please.

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        August 27, 2015 4:39 PM

        Would you rather your dividends be 100 duck sized horses or one horse sized duck?

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        August 27, 2015 4:46 PM

        Call in at their next shareholders meeting and complain about youtube. Everyone will have big laughs.

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        August 27, 2015 5:11 PM

        Can you lobby to get me a raise?

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          August 27, 2015 7:20 PM

          Can you estimate your contribution to the last quarter's performance? Keep in mind that R&D is tracked as an expense, not an asset.

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      August 27, 2015 4:22 PM

      What's a 3rd party developer?

      Interesting article. I'd definitely be interested in reading more stuff about how game developers' stock is affected by good/bad releases, etc.

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      August 27, 2015 5:04 PM

      nice, not Actizzard, but that our overlord is a market aficionado.

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      August 27, 2015 5:16 PM

      While I appreciate the article, I'm not sure how much I trust business analysis from the man who bought Shacknews.

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      August 27, 2015 5:54 PM

      AS IF!

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      August 27, 2015 6:01 PM

      Wait, isn't WoW almost dead? They're down to the population of Minnesota or Colorado, I think. How do they even make money anymore?

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      August 27, 2015 8:19 PM

      More business analysis articles would be cool.

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      August 27, 2015 10:20 PM

      How does the relationship to Activision, and now being listed in the stock market, help Blizzard?

      Aren't they basically being forced to now give away a good chunk of the money they make with their games to even more parasites: shareholders, in addition to non-value-adding management like Bobby at Activision?

      I thought Blizzard did financially good enough to pursue all their projects, even WoW, without needing loads of backing. Or am I wrong about this?

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      August 27, 2015 10:25 PM

      Cool article Asif, keep on writing these type of articles I enjoy them, thanks.

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      August 31, 2015 8:20 AM

      If anyone would like cheap games or controllers, this is the perfect place, Black Ops III for instance for only 30,-, it's a certified site and you can safe up to 40 bucks on a game: https://www.g2a.com/r/surenderf8