Stock Ticker: Activision Blizzard
Bobby Kotick's pronouncements may infuriate gamers - but do they really delight investors, as is so often claimed?
Yet it's worth noting that in spite of its steady performance (and the Buy ratings maintained by many analysts for the stock), Activision isn't entirely a stock market darling. In recent months, certainly, it's done very well indeed, but the reality is that for most of the past 12 months Activision has actually been underperforming the NASDAQ index on which it resides. The following graph is rather lenient to Activision, I should add - it covers exactly 12 months of data, so it starts in the mid-point of the publisher's seasonal rise. If you move the starting needle back only a few weeks, the percentages shift to show that the NASDAQ's rise in the closing months of 2010 actually significantly outperformed Activision Blizzard's. As you can see in the graph reproduced here, ATVI tumbled in the months after Christmas, while the NASDAQ remained fairly healthy until it fell off a cliff in early August, leaving Activision leading the market by the end of the graph.
What's going on here, then? It's clear that investors aren't exactly negative about Activision - if they were, you'd expect there to be a lot more movement in the stock, most of it downwards. However, something definitely constrained the price growth of the industry's biggest third-party publisher this year. Could it have been general negativity around the games industry in particular, as distinct from the tech sector as a whole (which is what the NASDAQ composite index effectively tracks)?
The straight answer is no - and here's where the figures get really interesting, and perhaps a little surprising. Activision Blizzard is the industry's 800 pound gorilla, and keeper of what are, right now, the two most valuable franchises in gaming in the form of CoD and WoW. It's got a CEO, Bobby Kotick, who's no stranger to controversy among gaming consumers for his forthright and often confrontational style, which is conventionally explained away as being "what the markets want to hear" - the idea being that Kotick as CEO is making decisions that aren't designed to please the gamers who buy his products, but rather to delight the investors who buy his shares.
Yet, if you stack Activision's share price performance over the past 12 months against its two largest US rivals in third-party publishing, this is what happens:
The contrast is stark. Activision is on a growth curve, but when you place it alongside its (smaller) rivals, its curve largely flattens out. Not only has it been mostly underperforming the NASDAQ, it's also been underperforming the companies whose business models most match its own - Electronic Arts and Take Two, long-established publishers who rely on sales of boxed software for the majority of their revenue.
Again, there are various financial and market-related aspects to take into account when looking at that graph. The first and most obvious is that EA and Take Two are smaller companies than Activision Blizzard: EA has a valuation around half that of its larger rival, while Take Two's market cap is around one-tenth that of Activision. As such, they're more inclined to be buffeted about by general market trends than the larger company would be, as is clearly visible especially in the huge slump that hits both companies in mid-August. You can see it on Activision's graph as well, but it's not very pronounced - by glancing back at the NASDAQ graph we can see that it's a general market drop, one which Activision's size nullifies to some extent but to which EA and Take Two alike are more vulnerable.