Shares of Activision Blizzard (ATVI +0.00%) hit a 52-week low last week. Let's look at what's behind this stock's recent movements to try to better understand what might happen in its future.
How it got here
It hasn't been a good year for game developers, but Activision's weathered it better than most peers. Take-Two Interactive (TTWO 0.30%) is the next-best, or maybe the next-least-worst, of the larger developers, and it's lost more than twice as much value as Activision:
Activision Blizzard Total Return Price data by YCharts.
Shares of Electronic Arts (NASDAQ: EA) and Konami (NYSE: KNM) have both lost a bit over four times as much value as Activision.
This chart doesn't even show the abysmal underperformance of sector stinker Zynga (ZNGA +0.00%), which has made so many questionable moves on the way to losing three-quarters of its value that CEO Mark Pincus could run away with 2012's Worst CEO of the Year award.
That doesn't mean Activision shareholders should be particularly happy. Its worst stretch is very recent, occurring immediately after the company launched the Mists of Pandaria expansion for its flagship moneymaker World of Warcraft. Before that, the stock was essentially flat. This is in spite of an Activision press release that claims 2.7 million copies were sold, and that WoW's subscriber base expanded for the first time in years, exceeding 10 million worldwide before its anticipated Chinese launch.
What gives? Let's see how Activision compares to its peers on a few key statistics before diving deeper into the details of its key game initiatives over the next few months.
What you need to know
Activision's made good progress over the last few years, especially compared to its peers. However, analysts don't envision as much growth for the games industry's leading developer as they do for several other companies in the sector:
|
Company |
P/E Ratio |
Net Margin |
2.5-Year* Net Income Growth |
Projected Growth Rate (2013) |
|---|---|---|---|---|
|
Activision Blizzard |
16.1 |
18.5% |
91.6% |
6.9% |
|
Take-Two Interactive |
NM |
(29.4%) |
(70.6%) |
(46.6%) |
|
Electronic Arts |
76.2 |
1.4% |
108.3% |
17.0% |
|
Konami |
11.3 |
8.3% |
94.5% |
NM |
|
Zynga |
NM |
(41.7%) |
(1,937.2%) |
57.1% |
Source: Yahoo! Finance. *Calculated from 2010 net income to trailing 12-month result. NM = not meaningful due to negative (or no) results.
Why have analysts granted Activision such a tepid growth rate? WoW's lost a quarter of its subscribers since the last expansion was released, so despite the stepped-up global launch of its new expansion, the trend has already shown that post-expansion interest can dwindle quickly.
Activision's move to digital distribution, and its efforts to monetize in-game items across its properties, has helped hold steady a historically volatile profit margin. However, shrinking subscriber bases will crimp any game company's revenues, no matter how efficient its monetization process.
Activision's other major moneymaker, the Call of Duty series, has seen its latest iteration fall behind its predecessor in preorders. The latest cumulative totals from VGChartz.com place Black Ops II 406,000 copies behind Modern Warfare 3 with seven weeks to launch. Black Ops II's preorders began taking off around this point in the preorder phase, so the gradual growth seen so far must improve rapidly to stave off a likely sequential sales decline, the first since Call of Duty's introduction.
Skylanders, the company's latest blockbuster-franchise-in-the-making, expanded to Kindles and iOS devices this summer, marking Activision's first serious attempt at mobile gaming. At the moment, it is the eighth-most-popular paid app on the Kindle store, but only the 142nd-most-popular app on the iPhone and the 136th-most-popular on the iPad. It's not a great start, but the company has a lot more marketing muscle to put behind this mobile effort than most competing studios.
What's next?
Third-quarter results might bring a small bounce in Activision's stock if WoW's subscriber gains through the first few days of sales are strong enough. However, it's year-end results that will be most important, as we'll discover how lasting those gains are, and how accurately Black Ops II's preorders predict its sales figures through the holiday season.
The Motley Fool's CAPS community has given Activision Blizzard a four-star rating, with an overwhelming 97% of our CAPS players expecting the company to beat the indexes going forward. That optimism hasn't been rewarded in years, as Activision's stock tracked the S&P 500 from the start of 2009 through the end of 2011, before finally falling behind in 2012. If you think brighter days are ahead (or if you want confirmation of your bearish thesis), add Activision Blizzard to your Watchlist now, for all the news we Fools can find, delivered to your inbox as it happens.
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