Call of Duty: 5 reasons Wall Street hates Activision-Blizzard

by manylaughs on December 8, 2012

(Full disclosure: Yes, I own Activision-Blizzard stock. This article is not intended to encourage you to invest in ATVI, but is more a brief glimpse into why Wall Street is fickle and, frankly, possibly right.)

On December 5th, Activision-Blizzard (ATVI) announced Call of Duty: Black Ops II achieved $1 billion in sales in 15 days. Wall Street yawned and their stock price actually closed down .03 at $11.23. If you’re running ATVI, you’d be forgiven for thinking you can’t win for winning.

By pretty much any measure ATVI is an extremely solid company. Its revenue for the previous twelve months was $4.5 billion, it has no debt, more than $3 billion in cash and has beat Wall Street’s earning expectations in 9 of the last 12 quarters.

So why all this Wall Street hatin’ on Activision-Blizzard?

1. Wall Street hates uncertainty.
Activision-Blizzard’s majority owner is Vivendi and Vivendi needs cash. This has led Vivendi to offer ATVI for sale, but so far there have been no takers. Still needing cash, Vivendi is shopping other parts of it corporate empire, but not takers there, yet, either. As long as ATVI remains on the auction house, uncertainty also remains and Wall Street hate uncertainty.

2. Wall Street hates losers.
The entire gaming industry is depressed. Since 2008, the entire gaming industry has taken a beating: Activision-Blizzard is trading around $11 a share, down from $17 a share in 2008; Take-Two, trading around $12 a share, is down from about $26 dollars; and Electronic Arts is trading for about $15, down from $50 a share in 2008!

There are lots of reasons the gaming industry is depressed – the economy, competition from mobile gaming – but let’s be honest, no one likes a loser, especially Wall Street. Once an industry falls out of favor, it can take a long time to come back.

3. Wall Street loves mobile gaming.
The new growth area in gaming is mobile gaming – Angry Birds, Bejeweled and pretty much anything else you can play on your tablet or phone. If it’s on a PC or console, that’s so yesterday’s news to Wall Street. Activision-Blizzard has very little presence in mobile gaming. Well, pretty much nothing to be honest. At least EA has Bejeweled, probably accounting for the recent rise in EA’s stock price. It sure can’t be because of Star Wars: The Old Republic, that’s for sure.

4. Wall Street hates old folks.
The mainstays of Activision-Blizzard’s money-making machine are just old, now, and showing signs of age. Subscriptions have slipped at World of Warcraft and… Well, that’s about it, really. Call of Duty: Black Ops II grossed $1 billion dollars in just 15 days! Imagine if it was a mobile app.

5. Wall Street is not very bright.
If the housing bubble and the Asian currency bubble and the South Sea bubble and the tulip bubble have taught you anything, it should be that investors, Wall Street or otherwise, are not especially smart people. Thieves and liars, maybe. Brilliant minds, not so much.

Need more proof? Last year, 84% of fund managers couldn’t outperform the market. All these supposedly brilliant people with all their financial acumen couldn’t do any better than you could by just taking your money and putting it in an index fund.

Human beings and investors are pack animals. As animals, we’re a bit prone to chase after the next shiny thing on the horizon, hoping it’s something fun to play with or, in the case of Wall Street, something extra profitable. Sometimes that shiny thing turns out to be worth the chase, sometimes it doesn’t.

Is Wall Street right about Activision-Blizzard? Is it getting old and tired? Are its halcyon days behind it? Is the new kid on the block – mobile gaming – going to kick its butt?

Who knows? We do know that 84% of the time Wall Street is basically wrong and just chasing the next shiny thing.

 

 

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