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Activision Blizzard Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Activision Blizzard (Nasdaq: ATVI  ) took a beating after the company announced the break-up of the Guitar Hero franchise and a disappointing first-quarter outlook. Shares dropped 11%.

So what: After excluding some items, Activision Blizzard told investors to expect first-quarter earnings of $0.07 per share. Analysts were expecting $0.10 a share. The company also announced plans to cut 500 jobs. (Including more than a few of its former rockers, presumably.)

Now what: There's no spinning this record: The news stinks, especially when you consider the stellar numbers put up by gaming peer Take-Two Interactive (Nasdaq: TTWO  ) this week.

Take-Two, home of the Grand Theft Auto franchise and the more recent hit Red Dead Redemption, booked $0.52 in per-share earnings on $334 million in revenue. Both results easily beat estimates. By contrast, Activision Blizzard reported a narrower Q4 loss on lower revenue.

Bulls will argue that Activision ended its year producing more than $1 billion in free cash flow. They're right; that is impressive. But with lower guidance and the loss of what had been a great franchise, it's tough to blame the bears for biting.

Interested in more info on Activision Blizzard? Add it to your watchlist.

Activision Blizzard is a Motley Fool Stock Advisor selection. Take-Two Interactive is a Motley Fool Rule Breakersrecommendation. Motley Fool Options has recommended subscribers open a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyersis a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Activision Blizzard and Take-Two Interactive and is also on Twitter as @TheMotleyFool. Its disclosure policy is at least 10% better than other disclosure policies.

Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2011, at 4:24 PM, dekay00 wrote:

    Took this as an opportunity to buy ATVI. Discontinuing Guitar Hero was not a surprise. We knew sales were dwindling from previous quarters, so I actually took this as good news. In addition:

    The transition from Infinity Ward to Treyarch has worked out. Their FPS franchises does not seem to be at risk anymore.

    Starcraft 2 is a hit. It'll keep the cash coming through expansions and such.

    Diablo 3 is rumoured to be out late 2011.

    Only thing that worries me is the WoW franchise. But until this day, there has not been any major threats even rumoured to exist.

  • Report this Comment On February 10, 2011, at 4:57 PM, Clippins wrote:

    There's a few things missing from this article:

    Company announced they are buying back $1.5 billion worth of shares.

    Company announced a 10% dividend increase to 16.5 cents per share.

    Kotick explained on the call that they really aren't losing 500 jobs as they will be adding jobs in other areas.

    The lowered guidance for the year is simply them being conservative based on not having a Blizzard title release this year. Blizzard hasn't announced a date for Diablo 3 yet. if they do release this year, obviously the guidance will be way low.

    I wish I could find something that "stinks" in the numbers or by listening to the call, but I just can't. The company wants to pay me more for my shares and also increase my share value through a buyback. I think the perceived value of Guitar Hero is way overblown. I'm glad that they put that money sink to rest before it had an opportunity to really drag the company down much like Viacom did when they unloaded Rock Band a few months earlier.

  • Report this Comment On February 10, 2011, at 5:03 PM, Borbality wrote:

    Maybe i'll kick myself for it but I dumped my shares. Might still be a great company but I just don't think the stock is going to gain favor any time soon. It's already valued at 12 billion. What happens if WoW loses favor?

    The margins are so thin and if all these sales from Black Ops, WoW expansions and Starcraft don't make a blockbuster quarter, I'm not sure what will.

    BTW I came out even after selling my shares.

  • Report this Comment On February 10, 2011, at 5:54 PM, garion55 wrote:

    It's only going to get worse. People are leaving World of Warcraft in droves. There have been some major awful mistakes by the current developing team that has resulted in a huge spike in cancelled subscriptions. if you have stock trust me dump it now.

  • Report this Comment On February 10, 2011, at 9:55 PM, 1jasonmarton wrote:

    You guys killed me on ATVI. You ought to be ashamed of your data that you use to make your decisions. I am so disappointed by this, you were way,way off. I can't say anymore it hurts to bad.

  • Report this Comment On February 10, 2011, at 9:58 PM, 1jasonmarton wrote:

    You recommended this as a great stock. Stuck with it way to long because of my subscription with Motley Fools!

  • Report this Comment On February 10, 2011, at 10:00 PM, bottomfisherman wrote:

    This stock is a flounder, stuck between the 10 to 12 dollar range. Relying to much on one product Black Ops to make them money, as someone else mentioned W.O.W is losing members and nothing new or exciting on the horizon. A great short candidate I see it falling to 6 dollars a share before becoming a good buy to hold until it tops out again at 12 and declines again.

  • Report this Comment On February 10, 2011, at 10:30 PM, davro wrote:

    I was a hold out until a year and a half ago. The stock wasn't going anywhere and the Stock Adviser was still promoting it. I thought I was still getting in at a good price. I've sold too many SA recommendations at lows only to see them bounce back and fly up. So I'm going to hang in this time. Only time will tell.

  • Report this Comment On February 11, 2011, at 3:03 AM, JavaChipFool wrote:

    1.5B free cash flow? I'll hang on. maybe wait and see if it drops to "6$" a share. and then definitely buy more.

    I too, have been hanging on because MF says its got potential. fortunately It is a small % of my portfolio. I have been flat to slightly underwater on this since I got it..

  • Report this Comment On February 11, 2011, at 3:57 AM, kariku wrote:

    Thanks a lot Stock Advisor for recommending this lousy stock! Thanks a lot for your *sell* recommendation of ERTS while it was around 16 just before going up to 18! And thanks a lot for never mentioning TTWO!

    So I have one word to say to you: "Bafangool"! I'm out of here.

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