Posted 03 August 2012 - 10:28 AM
Whenever we see a stock that has 74% of analysts rating it a buy and 26% of analysts rating it a hold we usually get interested in the company. Why is nobody selling? Is the company really that perfect? Can this be the dream stock that we have all been looking for our entire lives?
After looking into Activision Blizzard, Inc. (ATVI), we discovered an amazing looking company that is unfortunately almost completely sustained by the revenue it reaps from one game, World of Warcraft. When considering that the same company has a 60% majority shareholder (Vivendi) looking to sell its shares in the company you get the potential for a catastrophic situation. What if strong competition were to come into the MMORPG space (massively multiplayer online role playing game) and take market share away from World of Warcraft? How long would Vivendi wait before it starts jumping ship on the open market?
Short sellers beware, huge profits may lie ahead.
Vivendi (VIV:PA) is a publicly traded French company that has seen its shares steadily battered for the last three years. The shares have fallen from a high of 23.90 euros all the way down to a low of 12.70 euros, leaving shareholders very angry with management. Fearing for their jobs, management at Vivendi has decided to sell some of their equity interests around the world in an effort to boost their own share price.
Activision was their first logical candidate for sale. The stock has done virtually nothing for the past two years, usually trading in a tight range between $12.50 and $11.50. The only times that we have seen this company spike was when a new hit videogame was released, usually causing the stock to make a sudden 5% jump only to quickly trickle back down over the coming week. Not much can be said about this company in terms of dividends either; the common has a yield of 1.6%.
Vivendi originally tried to sell its majority ownership in the company for a 20% premium on the private market, but even the esteemed bankers at Goldman Sachs and Barclays could not find any takers for this deal. This clearly shows general pessimism regarding ATVI’s future. Vivendi then lowered its premium target from 20% to 12% in an attempt to seek an interested party. This failed as well — clearly not a vote of confidence from the market.
So now we must ask the question, how long will Vivendi be willing to hold its stake in ATVI if the company’s stock starts falling? Since management cannot find a buyer for their stake in ATVI on the private market, will they simply watch their company’s share price decline along with Activision’s? That seems unlikely.
So now the question becomes – what will cause ATVI’s stock price to decline so sharply that it would force Vivendi to begin selling its majority stake in the company on the open market?
World of Warcraft (WoW) has helped ATVI maintain its stock price, with this one single game providing roughly 30% of the revenue for the entire company via its expansion packs and monthly payments. Subscription revenue alone totaled $1.2 billion both in 2008 and 2009, and an additional $1.36 billion in 2010. Corresponding costs (the overhead cost of maintaining WoW’s virtual world) totaled a mere $404 million in the first two years mentioned, and $241 million in 2010. This means that WoW subscriptions have generated gross margins over 80% consistently. Since WoW has very high operating leverage any decline in revenue will have dramatic effects on the bottom line.
Guild Wars 2 is a fierce competitor that is creeping up on Activision’s WoW title at the end of August 2012 that we believe many investors have not factored into their ATVI recommendations. Guild Wars 2 has already been ruled by many on blogs and discussion boards as superior to WoW just based on the experience gamers shared while playing the Guild Wars 2 beta. Competition seems to be coming in strong indeed against WoW. Guild Wars was developed by ArenaNet, which is owned by South Korean-based NCsoft.
To play Guild Wars 2, all you need to do is pay $60 for a copy of the game and you no longer have to pay any monthly fees. WoW requires an initial purchase of $60 and a payment of $15 per month just to play the game. Guild Wars 2 will has the potential to attract many of the new MMORPG players that have been stuck in limbo since titles like RIFT (developed by Trion Worlds founded by former Electronic Arts and NCsoft employees), AION (developed by NCsoft), and Star Wars failed to take-off and beat WoW. What we have now is an entire generation of gamers that tried to switch from WoW to a new MMORPG but found themselves exactly where they started due to lackluster titles being released. With the release of a new game that has better graphics and better gameplay than WoW, one would be hard pressed to find reasons why gamers would not make the switch.
ATVI acknowledges the risk of WoW experiencing greater competition, without specifically pointing to Guild Wars 2:
The bottom line here is that gamers like to start on level playing fields. Gamers love to save money. Gamers are always in a frantic rush to play superior games. These three factors are the main reasons why Guild Wars 2 will win over market share from WoW.
Let’s examine what would happen to ATVI’s business if WoW subscription and software sales were to decline by an estimated 25%. We believe this to be a conservative estimate because games like EA’s new Star Wars MMORPG have had a significantly greater turnover than 25% in the first 6 months since the game was released.
This is a clear example of how bad games fail and how subscribers tend to voice their preference rather quickly and mercilessly. We estimate that ATVI’s gross profit of the subscription business could drop to $779 million from the current $1.12 billion and software gross profit could drop to $75 million from $100 million if a mere 25% of current subscribers stop playing WoW. With the combination of these numbers, we project ATVI could experience a drop of up to $366 million in gross profit in the 6 months following the release of Guild Wars 2 at the end of August 2012.
The consensus target from analysts for ATVI is $15.59 for the current fiscal year. The stock is currently trading at 11.85x forward P/E. Given our projection that WoW will lose 25% of its subscribers to Guild Wars 2 in the current fiscal year we are looking at a potential $9 stock. Of course ATVI also creates beloved games such as Call of Duty, Starcraft, and Diablo, making the stock hard to short in the minds of many investors. We simply wish to remind readers that these games are merely one-time cash injections that tend to make ATVI go up on quarterly earnings, but investors can generally expect to see the company drop back to its lows within the same week. The fact is that ATVI’s revenue and margins are completely being held up by WoW: If those go down, so does ATVI.
Now once the stock goes to $9, what do you think Vivendi is going to do? A company that has seen its shares fall by over 45% in the last 3 years is not going to just sit back and watch billions of dollars erode from their balance sheet. If Vivendi cannot find a buyer on the private market, and we are confident that they will be unable to do so, then management will begin selling their position in ATVI on the open market in order to avoid heavy losses. This is where the real money will be made. If we were to see Vivendi selling even 10% of their position on the open market the damage to the stock would be devastating.
Even though Vivendi is currently exploring several options to raise its stock price, we ask you to make a simple judgment call here. If you were Vivendi, would you not sell a company that is losing massive percentages of market share to its competitors? If you were on the management team of Vivendi would you honestly not cut your losses by selling ATVI when the chief game of the company suddenly begins failing to competition? Management departments at both firms have been warned and short sellers should stand ready to act after ATVI reports on August 2nd during afterhours. Let the bulls bid up the stock based on the record breaking Diablo 3 sales, it only helps to mask the coming fundamental problem of the business.
Posted 03 August 2012 - 03:44 PM
Posted 03 August 2012 - 03:56 PM
Posted 03 August 2012 - 04:59 PM
During the last weeks views and visitors on AJ have constantly increased by the way.
Posted 03 August 2012 - 10:16 PM
Posted 03 August 2012 - 11:04 PM
- For one, players like me, that for example love playing Gnomes do not find an adequate replacement. Asuras are cool, but they aren't Gnomes. Sounds stupid? I certainly understand that, but for Gnome players that are deeply attached to their characters more than just a really good game needs to come out. You would not believe how many players feel this way.
- There is no raiding end game, which means that all the raid guilds will not consider switching.
- Players know their tricks in WoW and a new game poses the thread that all this knowledge and achievement build up over years is just worth nothing anymore. Your TBC glad or your Death's Demise title is now worthless and you start from scratch.
- Social pressure. Players want to keep their guild intact and switching would mean losing that.
- Skill matters, means you cannot bitch on overpowered mages because there is no restriction which class/gear/spec you use. Which means you lose because you played worse and this is something very hard to swallow for someone playing WoW for years. There are no excuses, little RNG and this means that the sense of self may suddenly say "you suck".
But and a wise man once said, that every word a man says before the "but" can be discarded: GW2 rocks, GW2 has ideals, devs, that listen to the community and huge promises, tournaments, e-sports, no grind and so much more. It is on paper the better game in my opinion. I especially think that after playing GW2 for some weeks the WoW grind will feel more painful than ever.
I think the main reason more and more people despise WoW is because it is deeply corrupted. Achievements and gear is bought, titles have lost meanings, world first pve means succesful class stacking and getting away with exploits. 98% or more of the competent arena players treat the game as an easy way to earn extra cash that is not taxed by f***ing the ladders with boosts. Rarely you see new players rise in the pvp community. Xandyn and Metaphors are two rare examples that managed to prove themselves in Cataclysm, but the basis is missing. We witness that wintraders attend the regionals and that people buy rank one season for season.
GW2 has no room for this corruption as you would have a hard time buying tournament victories. It has no gear you could buy and most likely not a lot of things that would offer bragging rights for cash. It has no problems with over-powered gear gained by farming dragons. Still, we don't know if Arena Net can keep their promises, if the 5v5 conquest mode will be as attractive as our beloved 3v3 arenas in WoW.
WoW has still a chance to become a fun, but most likely not balanced pvp game. We will see tournaments with MoP, we will cheer for our favorite comps, rage over buffs and nerfs and care although we pretent we don't. Let's be honest, we love WoW, we were often disappointed, but we are willing to forgive. WoW will be around for quite some time and as much as we hate on the developers and their decisions I highly doubt they will let this game fall to pieces. I for one love the idea behind GW2, love the concept and I will support this game on AJ, but playing asura just did not feel the same as Gnome. Hildegard is irreplaceable.
Posted 04 August 2012 - 12:33 AM
This is wrong at so many levels. What you are referring to is actually something that a very small percentage of players even realize exists. You are saying that 1.1 million people quit WoW because of "corruption"?
I do not know why people never state the simple fact that WoW is a 7 year old game and is losing its flare in terms of "new content". A new raid instance is not new content by the way.
Edited by mukuld50, 04 August 2012 - 12:36 AM.
Posted 04 August 2012 - 02:34 AM
If WoW was a good game, aka a good product, people would buy it.
WoW is NOT a good game anymore, so therefor people don't buy it.
Same reason people dont play with Yo-Yos anymore...shit gets old.
I cant spell nor do I want to learn correct grammer.
Edited by Nmplol, 04 August 2012 - 02:36 AM.
Posted 04 August 2012 - 04:00 AM
we fight/beat glads, relentless glads, brutal glads, wrathful glads every game. Just because youre good at arenas doesnt mean u know how to bg. -Yajirobí (highest rated RBG player at 66% win/loss)
Posted 04 August 2012 - 06:31 AM
Posted 04 August 2012 - 07:19 AM
On a side note, when I made that post, I was trying to post from my cellphone at the time that I do appreciate the effort that you are putting into content generation for the community. Guess I would rather you show your true arrogant colors though instead so I can learn how to avoid your content from now on.
You are right, my post was arrogant and offensive, especially the last sentence and I apologize for that.
When you started the NAO tournaments I loved what you did, retweeted every single NAO tweet, advertised the tournament on Facebook, my old blog and even the trade chat. I organized Team Speak sessions to follow the games with other players. But when I realised that you owned your very own boosting site I became extremely disappointed and you got the full echo of that in my last post. As stated above - basically everyone here does boosts, but you were someone that seemed to turn around the game with your effort for the tournaments. I had so much hope and then it shattered. Someone with your skill level should not depend on earning money with shady stuff, you could do so much better.
Still my post was not acceptable and it is not true that you gave nothing to the community. Which is not saying I don't think you hurt the pvp community overall. So I am trying to think of a way to make it up. Maybe we could have a discussion about this very topic, published in the general section.
Posted 04 August 2012 - 07:52 AM
A few things though. I do not think that you understand how deeply rooted the problem you speak of is. I have no intentions of posting information about some of the very people that you and many others look up highly to, as they are all my friends, and there will never be a winning answer.
If you want to have a discussion about the topic, I will for your own personal understanding, however posting something like that on ArenaJunkies will do nothing but cause an unnecessary storm of bickering back and forth.
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