In its third-quarter earnings report on Nov. 8, video game publishing behemoth Activision Blizzard
All this should be great news, right?
Why is everyone hating so much?
Since the company reported earnings, the stock has dropped by a significant 13.5%, mainly because its other blockbuster game, World of Warcraft, suffered an 800,000-subscriber decrease, from 11.1 million to 10.3 million. Blizzard accounts for about 40% of the entire company's revenue stream, and World of Warcraft is a huge part of that sales pie. So the massive decrease in subs came as a surprise to many in the industry and sent the share price scuttling downward.
The video game industry as a whole has been struggling. THQ
The bottom line is that during a long-lasting recession in which unemployment is staggeringly high and video games represent a luxury, people just aren't buying at the pace they used to.
Stay positive, my friend
Still, there are plenty of reasons to love Activision Blizzard at today's price of around $12 per share. First of all, it's true that the decrease in subs is worrying, but Blizzard has other games that should be able to help turn the tide, such as Diablo 3 and an expansion for Starcraft 2. And I haven't even mentioned the enormous potential that Activision has because of its partnership with Bungie, which is sure to catapult the company forward because of its extreme talent and development expertise.
And the company apparently appears to believe in its future success, as it's expecting to earn $0.55 per share while analysts anticipated $0.53 per share. It also upped its full-year guidance, no doubt in part to the monstrous success of Call of Duty sales.
Its current P/E ratio of around 19 is far below the average ratio for the past five years or so, and the company's war chest of a balance sheet doesn't hurt too much, either. It has more than $2 billion in cash and absolutely no debt, so it can sustain economic lulls better than any competitor and also has the ability to retain top talent. In the meantime, benefit from its 1.5% dividend yield and get ready to see the stock soar after it reports fourth-quarter earnings during the holiday season.
For all these reasons, I'm suggesting that Activision is a strong buy, and I'll be heading over to my Motley Fool CAPS page to reflect my strong conviction.
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