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Varchild2008 (84.39)

Varchild raises ATVI to "Strong Buy" from "Hold" and lifts EPS estimate $16

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August 05, 2009 – Comments (8) | RELATED TICKERS: ATVI

Yes Yes.. I'm allowed to do this to a stock I own 565 shares of.... Hey.. I wasn't wrong when I screamed STOP!!! when the share price struck $13.00 was I???  And it's my blog!

Was I wrong when I lowered my stance from Strong Buy to HOLD  just prior to anyone else in the actual, professional, paid analyst world lowering their expectations?  I mean.. I was first to declare HOLD on ATVI.. I did it  HOURS before Standard and Poors came out and lowered their Strong Buy stance to Hold.

I was right I was right!!  I can't always be right... But, I was right...so I can maybe be right again?

 I do deserve a little respect for making my bullish claim on ATVI.. a stock I own 565 shares....  This doesn't mean I want people racing to their Bank to withdrawl their entire savings account and pouring their hard earned money into ATVI expecting the share price to explode to the upside in 3....2......1....seconds from now....

Cause if that's the attitude anyone takes from reading this.... That's wrong...  ATVI is going to sorta fluctuate still like a slow growth stock... It's not ready for "Oh My God... Momentum Baby!" status yet. 

That gets reserved for Q4  Christmas Sales + a firm stance from ATVI as to their 2010 expectations.  I'd love to see ATVI explode to $99999999  a share... I mean who wouldn't? 
But, in a realistic world you can't expect more than a couple of points of upside out of this earnings report.

Took several months after DPS IPOed to finally enter "Momentum Status" back to $19 a share from Slow Growth status... DPS is another stock I own...  And I sat on that one for a very long time before it started to explode to the upside back towards where it started from.... Hopefully that one does well...and momentum continues...

But anyhow...  That's my disclaimer and I am sticking to it....

Here's the game plan for (ATVI).

It is now "OK" to buy ATVI  at $13.00 a share....  But, I'm putting up a SELL! rating  if this thing touches $16.00  a share before the next earnings report.  There is still too much "touch and go" to be any more bullish than that.  I'd love to be more bullish but a smart investor selects their ceiling carefully and sits on that ceiling waiting for any sign that it should be lifted.

I know my $16.00 ceiling 12 month target price here CAN be lifted... Starcraft II is the catalyst for that.  It is the catalyst for ACHIEVING $16.00 a share and perhaps exceeding that.

So.. 12 month target price?  $16.00  instead of roughly $13.00.....  Not really earth shaking stuff here.

At $11.55  this one is now a Strong Buy.

Why?

A)  Increased Share Buyback Program +$250 million means you'll be buying alongside the company for awhile longer than previously expected.

B)  Outperformance in Q2 (a total of 4 beats on company outlook in a row now since Blizzard) opens the door for Outperformance in ATVI's extremely cautious/bearish outlook for revenue for Q3/Q4. 

Q3/Q4  has one thing going for it that Q2 does not.  WoW comes back on-line in CHINA...

C)  2.8 pts better Market share + better Margin Growth isn't just 2.8 pts better.  It is an upward trend that this company has had for quite sometime now. 

End of my story...

For newcomers to the Video Game Investment World... Look for a news article from Blizzard stating, "STARCRAFT II  goes GOLD!"  to mean that the disks for the game have been manufactured or are being manufactured for distribution to store shelves.  That article and not the actual sales data is what will finally turn ATVI for a short time period into a Momentum Stock.

8 Comments – Post Your Own

#1) On August 05, 2009 at 7:00 PM, Varchild2008 (84.39) wrote:

Pushing Starcraft II to 2010 means not only do analysts have to factor in the Q2 EPS beat and Revenue Beat..... but they also have to factor in their increased outlook on 2010 if their outlook was still based on Starcraft II releasing in 2009.

The only caveat here remains the darned darned horrible American Economy....  The Unemployment figure is not only shown to be atrocious in July, but so bad that we are back to "Accelerating" job loss rather than "Decelerating" job loss in form of the expected, pre-planned, pre-announced layoff numbers.  Already just over 93,000 will lose their jobs soon...On top of whatever mess happens....Not to be pessimistic here...

But I wouldn't throw a fit or get frustrated if S&P refuses to budge their $14 price target.....or refuses to go back to a Strong Buy rating....

I don't think Standard and Poors will be as bullish as me on ATVI....  But what I do know is even with a 10 cent miss year over year on Q4 earnings we are looking at an obvious beat on EPS against Standard and Poor's 36 cent 2009 EPS expectations. 

I think a beat by at least 10 cents will force S&P to life their eps expectations by at least 10 cents a share.  Curious to see if I am right on this prediction but really it's easy to make.
Both GAAP and Non-GAAP EPS were beats over even the highest analyst expectation of 7 cents a share.

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#2) On August 05, 2009 at 7:05 PM, Nainara (< 20) wrote:

I'd guess that Blizzard will announce an actual release date or quarter long before the game itself goes gold.

In the meantime, does activision have anything in the pipes to generate fresh revenue during the next few quarters? 

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#3) On August 05, 2009 at 7:11 PM, Varchild2008 (84.39) wrote:

*OOPS*

Another thing....  The best thing said during the entire conference call was that based on the "Pre-orders" alone for Call of Duty Modern Warfare II,  that game is set to do better in sales than it's predecessor.

There IS however a caveat.  The caveat is that shoppers can and will cancel their pre-order if they lose their job and have to make a sacrifice.  Some might cancel out of the Prestige edition only to then buy a pre-order on the cheapest $60 version.

It is a crying shame that not one investor asked Bobby Kotick today whether the employment situation will lead to Pre-Order cancellations.... I sure would have liked to hear expectations on cancellations on Pre-Orders as unemployment rises.

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#4) On August 05, 2009 at 7:14 PM, Varchild2008 (84.39) wrote:

Nainara said,

"In the meantime, does activision have anything in the pipes to generate fresh revenue during the next few quarters?"

Mobile games begin to release as we get to the end of Q3 with video game maker (GLUU) if I am not mistaken.

GLUU is doing 4 top tier game titles including a call of duty version for Cell Phones.  Don't quote me on that as I'm purely going by memory...

But... the real driver is CHRISTMAS Pre-order  of all of those Christmas releases.... Q3 is PRE-ORDER driven.

Every single year it seems.... Summer is when new unproven IPOs release.... and Christmas is when the good stuff releases... leaving Q3 virtually EMPTY except.... for the Pre-ordering of the stuff in Q4.

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#5) On August 05, 2009 at 7:29 PM, Varchild2008 (84.39) wrote:

Marvel Ultimate Alliance II is HUGE... That's out  along with Wolfenstein in Q3. 

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#6) On August 05, 2009 at 7:36 PM, jddubya (< 20) wrote:

+1 rec - I like your analysis!  definitely no bs here

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#7) On August 05, 2009 at 7:43 PM, Varchild2008 (84.39) wrote:

Thanks.   I'll always announce on this blog if I am wrong... just as I did with (HOTT) and other mistakes.

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#8) On August 05, 2009 at 7:52 PM, Varchild2008 (84.39) wrote:

"I'd guess that Blizzard will announce an actual release date or quarter long before the game itself goes gold."

Sure... But, no one will believe it.  No one will ever believe Starcraft II's release date until Blizzard finally announces that it is GOLD.

Blizzard just like ID SOFTWARE has historically been a game developer whose motto is "It will be done when it is done."

That motto is the motto expressed by every successful video game developer that I have ever known since Pac Man.

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