Activision, Inc. (ATVI)

Gibybo (96.96) Submitted: 12/31/07 2:30 AM

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The stock might be priced to WoW, but the value is in Blizzard. Every other game company is lucky to produce one game that becomes a number one seller. It would be surprising if Blizzard released a game that wasn't. That creates some ridiculous brand loyalty.

Let's not forget the 72% annual returns (of Blizzard) for the past 11 years (the oldest data point of any worth). You could say that the best years are behind them and you might be right; but if you think continued 40% returns are out of reach, you don't know Blizzard.

There are 7 billion people that all need to be entertained, Blizzard provides some of the cheapest entertainment available. Sure you can start chipping away billions that still can't afford it, and hundreds of millions more that won't want it. You can take away even more in anticipation of competitors, but you're still left with a population of would-be customers that the current 10 million can hardly put a dent in.

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jhauz (< 20) Submitted: 12/31/07 3:01 AM

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You fail. You totally forget Starcraft 2 and it will be huge. WoW's next expansion release (which beleieve it or not is highly anticipated) is just icing on the cake. Blizzard is already working on their next MMO. Look at BLizzard's track record with games. Never bet against them. Activision stock may fluctuate in the short-term a bit but it is going up, up, up. Video game stocks in 2008 will do great and this will be one to own.

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mikotian (99.74) Submitted: 12/31/07 4:29 PM

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I will address these replies one by one:


I happen to be a videogame geek as well as a stock geek. I have played every single one of Blizzard's games and was pretty much addicted to WOW for a solid year or more. So yeah, I would be loathe to bet against Blizzard's production values.


But honestly, how much value does the "Blizzard" brand hold? I would argue, not very much. Think of it this way. Blizzard has NEVER had a major failure (don't count stuff like the Lost Vikings, or Ghost). That's why their name is all glittery. But, if they ever launch a mediocre game, that veneer will be shattered. God forbid, if the game sucks, it will take years to rebuild that reputation.


Or look at it from another angle. If a Blizzard game came out, but got mediocre reviews. Would you still buy it? (especially if it was a subscription based game). If WOW2 came out, and it was "meh", would you stay subscribed out of loyalty? I personally wouldn't. The "Blizzard" brand is only as good as its newest game, and I wouldn't assign significant "perpetual" value to it.


...


Starcraft2: Yes Starcraft is one of the biggest RTSs of all time. I played it competitively for a number of years. But, the potential audience for a deep RTS is fairly small. Traditionally, RTSs have been one of the smaller genres in PC gaming, when compared to shooters, and such. The game, I think, will be quite successful. But how much is the franchise worth? Keep in mind, Starcraft is NOT a subscription based game. Therefore, it's economics is vastly inferior to a game like WOW's. I would not pay a billion bucks, or even a half billion bucks, for SC.



New MMO: I think the market is pretty much pricing in the fact that the new MMO will be as big or bigger than WOW. I think this will be quite unlikely. Besides, given the development cycle for MMOs, I VERY much doubt that this new MMO will be ready even in 2009. Given Blizzard's penchant for perfecting its games and delaying their releases, 2010 is a much safer bet. I think WOW will be well into its decline in 2010, no matter if this game is a success or not. I'd rather not pay a huge premium for this particular bird, which is not even in the bush yet, but is still flying around well beyond my reach.

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jakkal (76.40) Submitted: 1/03/08 2:19 AM

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I think your comment on staggering disproves itself. You say that by staggering the release of WoW in different countries around the world, Blizzard has created the illusion of growth. My question is, how is losing 100,000 players in Europe and the U.S. but gaining 1,000,000 in China an "illusion" of growth? They are netting themselves 900,000 new players. No game will hold all the players, all the time. WoW will and is losing some. But as long as they are keeping most and signing up more players than they're losing, they will continue to grow, even if the influx comes from a new territory.

So what if they're staggering the release of the game? The fact remains that any and every other MMO could do this as well and I don't see anyone else with 9 million players plus. The staggering is not an "illusion" but a strategy to bleed players at a pace slower than they can acquire them. Instead of a big sign-up boom that would've had them reach their apex in a year, they've parsed out their growth and have been able to keep it going even now, a little over three years after the game's release. Staggering is just plain being smart.

About expansions having diminishing returns, I believe you're right. However, Wrath of the Lich King is only the SECOND expansion of WoW. Also, it offers a lot of features players have been clamoring for (hero classes, customizable hairstyles, dance studios, etc.....and Arthas). Sure, WoW will lose some players who won't buy the expansion, but the anticipation for WotLK is just too big for its reception to just be "luke-warm." Furthermore, I don't believe the expansion to be too far off (about six months or so). Even so, there is a new, big content patch coming in to keep players busy until then. Should the expansion be delayed, Blizz has already announced they have more storyline to add in to keep players busy until WotLK is released.

Lastly, about your comment saying WoW has no more big new markets to penetrate... you must have missed this little bit of info:

http://www.wowinsider.com/2007/12/10/wow-coming-to-russia/

Yeah, WoW is coming to RUSSIA in 2008. Plus, with all the new multi-language B-list celebrity commercials Blizz seems to be aggressively pushing to sign up new players from Latin America, among other places.

So yeah, WoW's here to stay (strong) for at least another year or two. And by then, the new MMO will be out (or they hype will already have people on the edge of their seats).

Long story short, my money is on Activision Blizzard.

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mikotian (99.74) Submitted: 1/03/08 11:00 AM

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Points one by one:

Yes WOW has put up big numbers in China. But please remember that China's economics are very weak compared to US's or Europe's. Chinese players do not BUY the game disc, nor do they pay monthly fees. Instead, they buy game cards (for very cheap). It's been a while since I've looked at the numbers, but last time I did, I remember that the per hour cost for playing the game is only 3 or 4 cents.

The bottom line is that each Chinese player only contributes a fraction to the bottom line as a US or Europe player.

Of course, the absolute growth is real, in both numbers of players, and in revenue for the last two years. However, the illusion is in the NATURE of the growth. So far, growth has looked very steady and predictable, because they have done a good job of staggering. This is smart, and is probably why Vivendi stock has done so well over the past couple of years, because the Street loves predictability. In reality, of course, they are stacking a series of peaking and then declining (roughly bell shaped) growth curves. This cannot last in perpetuity.

WOTK: I believe WOTK will be a successful expansion, as you have indicated. However, we are still a LONG way off from the next game! Will WOTK and subsequent expansions/patches preserve the player base not only for the next six months or year, but for the next two or three years? Maybe, but I doubt it. Will these things GROW the game over the next three years? I doubt that even more. This goes back to my thesis that the stock is priced for growth, but I don't know if the growth is coming.


Russia: They are not launching the game in Russia, as I understand it. Currently, Russian players that speak a European language are eligible to play on European servers. They are launching just a Local Language version of WOW, which is a totally different matter. I think at least a portion of interested Russian players are already involved in the game, since foreign language education in Russia, like many other places in Europe, begins very early and lasts a long time. Furthermore, Russia is a very big country, but it's sparely populated... How big a market will Russia turn out to be? I don't know but I will be very surprised if it turns into China Part Deux.


Ad campaign: They are funny commercials. (Mr. T's night elf is a noob, btw!) But will they revive the NA market? I don't have any opinion on this...

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sjl270 (61.01) Submitted: 2/14/08 9:43 AM

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Korea alone will sell 8MM copies of Starcraft 2... so I don't think ppl need to worry about the depth of the RTS market... when you succeed in making your game a cultural phenomenon and a national past time... i think you can claim that you are more mainstream than niche.

Also, anyone who says that you can't use past success to justify a company's prospects going forward should not be investing in the stock market. Past success is what gives you best of breed status... and when it comes to PC games, whether it's RTS, RPG or MMORPG... Blizzard is definitely best-of-breed. Their amazing string of hits is not luck, it's a product of a great management that knows what a market wants and delivers a quality product. They turned in entire country into a gaming nation for *(#$@-sake... This is just a good business all around, and I would not bet against it.

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rupture007 (< 20) Submitted: 5/13/08 6:30 PM

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I bet you regret shorting this....?

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mikotian (99.74) Submitted: 5/17/08 4:52 PM

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No I don't think so. It's not easy to time the cycle, and obviously I was 20% too early. But, honestly, when you take the entire cycle into context, 20% is nothing.
I'll admit to eating crow if the stock goes up 100% though.

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