Activision (ATVI) Investors Get 'Misty'-Eyed Over Potential Gains - Barron's

August 6, 2012 12:30 PM EDT
WoW, Activision Blizzard, Inc. (Nasdaq: ATVI) shares are trading stronger Monday following a bullish report in Barron's over the weekend.

Barron's noted the upcoming launch of Mists of Pandaria, an expansion pack for World of Warcraft (WoW). Due out ahead of the 2012 holiday shopping season, Mists of Pandaria is said to be one of the few big launches for Activision over the next year or so.

Another potential profit point is Activision's recent deal with Tencent Holdings, which will bring Call of Duty to China as an Internet title. The duo have pegged mid-2013 as the launch of Call of Duty on Tencent's platform. Though the game will be free to play, Activision will set up an in-game store for players to purchase gear an accessories, Barron's notes. One positive analyst on the deal sees the partnership adding 17 cents per share to earnings.

Investors are hoping for some big sales and big results. For 2012, Activision shares fell 10 percent and are now going for 11 times fiscal 2013 earnings expectations. By comparison, the broader market is up 11 percent on average in 2012.

One moving part in play besides the gaming industry is Vivendi's recently announced intention to sell its 61.5 percent stake in the company. Vivendi acquired the position via merger of Activision and Blizzard Entertainment in 2008. Whether shareholders will come out ahead or behind in a deal remains uncertain given the higher price ($7 billion to $8 billion) and limited pool of bidders. Barron's sees either Microsoft, Tencent, or Time Warner Cable (NYSE: TWC) making a possible bid.

Though many investors have expressed worry over traditional gaming losing out to its mobile brethren, there's always Diablo III as a reference point. Diablo III sold six million copies in its first week and it could add five cents to EPS in 2012 alone. The number doesn't include an auction house, where players can buy and sell gear with other players. If six million units means traditional gaming is gone, then 2013 will be the real test.

Late in 2012, Apple will release iPhone 5, which should have a thinner profile and run on a speedy 4G LTE network. Gaming giants Microsoft (Nasdaq: MSFT) and Sony (NYSE: SNE) may also be girding for a console refresh next year. Should Microsoft and Sony have strong sales results with their new devices, it would be a positive for Activision. Unlike peer Electronic Arts (Nasdaq: EA), Activision doesn't have a tremendous presence in the mobile/social gaming market.

Adding more value is Activision's balance sheet; there's no debt and wads of cash. In fact, Activision reported buying back 26.4 million shares in the first-half of 2012. The standing allowed Activision to report stronger than expected second-quarter results last week, all while boosting fiscal 2012 expectations.

With a strong pipeline in the works and a console refresh coming soon, investors should press play on acquiring a few shares.

Activision is up over 2 percent Monday.

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