Activision: Potential for Explosive Returns

Activision (NASDAQ:ATVI) is trading at fair value at current prices. It has the potential to hit at least “one home run” title. This has not been adequately priced in its stock price, and the stock represents a buying opportunity.

Detailed Summary:

Activision Blizzard is the dominant game maker with such titles as Call of Duty, World of Warcraft, and the Guitar Hero franchise. These titles have sufficient recurring revenue and growth. The company’s hidden value lies in upcoming titles for 2009.

The purpose of this report is not to speculate on the value of the company should these titles become blockbusters. This will require further analysis as more information (indicators of strong demand) becomes available. Therefore, investors should consider ATVI a core holding, with the potential for explosive returns some time between late 2009 and early 2010.

The mere market speculation and the potential for “Blockbusters" for 2009 make ATVI a potentially good performing company to own in bad times, but especially in good times.

Quarterly Result Summary:

Earnings exceeded expectations due to a strong execution in the company business strategy, strong partnerships with its retail channels, and product inelasticity to a weak economy.

- Diluted earnings were 0.15 vs 0.07 last year.

- non-GAAP EPS was $0.08, $0.05 ahead of outlook (Non-GAAP is generally not a usable figure, but is required for comparative year-over-year analysis, adjusting for the ATVI +Vendor merger)

Note: 0.02 earnings came from a lower tax rate (32% from 34%)

ATVI has broadened its retail channel in China with a partnership with NetEase (NTES). This is a risk factor from an operational perspective, so investors need to monitor the initial success rates of this partnership.

Side note: I cover GME (long) and another user has identified GME 's business model versus online game purchasing to be a future trend.

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source: http://seekingalpha.com/article/139757-activision-potential-for-explosiv...