ATVI - Activision Blizzard, Inc.

What Does Activision Do?

Activision Blizzard, Inc. (Activision Blizzard) is an online, personal computer (PC), console and handheld game publisher. It has 3 segments: Activision Publishing, Blizzard Entertainment, Inc. and its subsidiaries & Activision Blizzard Distribution. Basically, this company makes video and PC games, and good ones at that. Why are we taking a position at these levels? 

Bull Argument

Activision, and video game companies in general, have taken a hit recently. On a valuation basis, ATVI looks undervalued. The company has no debt, consistent profit margins, and a competitive (slightly below industry) PEG ratio. It benefits from continued releases in a couple highly successful game franchises, including World of Warcraft and Call of Duty.

Based on the fact that the video game industry continues to grow in the long term, and Activision is well positioned as a market leader, we feel this moment in time presents a good buying opportunity for ATVI.

Bear Argument

Video game sales declined 8% (year over year) last month (a 19% drop in hardware and a 6% drop in software), and console sales of the Sony Playstation 3 (-37%) and Nintendo Wii (-45%) have dropped (Microsoft's Xbox console, however, increase sales).

The bottom line is while the unemployment rate is high, parents won't be spending additional money on video game sales. The bears are sitting on the sideline for now.

Our Position

In the end, we feel that the long term promise of the video game sector make for a good opportunity for Activision stock to appreciate once the economy finds itself on firmer ground.