Do Gamers Like Starcraft II: Heart of the Swarm?

With shares of Activision Blizzard (NASDAQ:ATVI) trading at around $15.57, is ATVI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Has Starcraft II: Heart of the Swarm been a success so far?

If you look at ratings on any site that offers gaming reviews, the answer is yes. While Amazon.com Inc. (NASDAQ:AMZN) might not be a gaming-specific site, it receives the most reviews from the widest audience. At Amazon, StarCraft II: Heart of the Swarm ratings are impressive. It’s rated a 4.5 of 5. Here’s the breakdown of the ratings:

5 Stars: 146 Gamers

4 Starts: 31 Gamers

3 Stars: 11 Gamers

2 Stars: 10 Gamers

1 Star: 16 Gamers

Based on these numbers, approximately 88 percent of gamers are at least satisfied with the game, and 68 percent of gamers gave it the highest rating possible. These are excellent numbers. Activision Blizzard could make a game that offers more excitement than Space Mountain and more suspense than an Alfred Hitchcock movie, but there would still be haters. That’s why looking at a wide audience is important. It offers an accurate gauge for the quality of the game. If the quality of a game is good, then it has the potential to lead to increased Activision Blizzard gamers as well as increased revenue.

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For those gamers (or investors) who want to look ahead, below is a quick and intriguing teaser for Call of Duty: Ghosts.

What did you think of the teaser?

Battle.net is a second home for many hardcore gamers. The following quote is on Battle.net and indicates the company’s goal: “Blizzard Entertainment’s vision for the new Battle.net is to unite all Blizzard gamers under the banner of a single, powerful, and advanced online gaming service.”

According to Alexa.com, traffic at Battle.net has been average at best over the past three months. Pageviews-per-user has declined 2.72 percent and time-on-site has declined 4 percent. However, the bounce rate has declined 4 percent, which indicates that the content being offered is interesting enough for more people to stay on-site than in the past.

Now let’s get to some different types of numbers. Below is a chart comparing basic fundamentals for Activision Blizzard, Electronic Arts Inc. (NASDAQ:EA), and Take-Two Interactive Software Inc. (NASDAQ:TTWO). Activision Blizzard is more impressive than its peers in almost every fundamental category.

ATVI EA TTWO
Trailing P/E 14.40 72.81 N/A
Forward P/E 15.18 15.89 14.79
Profit Margin 24.38% 2.58% -2.43%
ROE 11.09% 4.15% -5.27%
Operating Cash Flow 1.52B 324.00M -4.57M
Dividend Yield 1.30% N/A N/A
Short Position 1.80% 5.90% 18.50%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong

Activision has been a strong performer year-to-date.

1 Month Year-To-Date 1 Year 3 Year
ATVI 6.86% 48.63% 28.02% 58.70%
EA 29.45% 55.30% 53.51% 35.03%
TTWO 3.26% 43.69% 34.30% 47.03%

At $15.57, Activision Blizzard is trading above its averages.

50-Day SMA 14.79
200-Day SMA 12.99

 

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E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Activision Blizzard is stronger than the industry average of 0.30.

Debt-To-Equity Cash Long-Term Debt
ATVI 0.00 4.62B 0.00
EA 0.25 1.68B 559.00M
TTWO 0.57 402.50M 335.20M

E = Earnings Have Been Steady

Earnings and revenue have consistently improved on an annual basis.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,026 4,279 4,447 4,755 4,856
Diluted EPS ($) -0.11 0.09 0.33 0.92 1.01

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 1,172 1,075 841 1,768 1,324
Diluted EPS ($) 0.33 0.16 0.20 0.31 0.40

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

Activision Blizzard is by far the best company in this group. Margins are impressive, cash flow is strong, and revenues have been improving. This isn’t to say Activision Blizzard is the ideal investment in the current economic environment, but it should be the best option in this group.

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Activision Blizzard is an OUTPERFORM, but investors should pay careful attention to broader market conditions and have an exit strategy in place.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.