Piper Jaffray Downgrades Activision Blizzard (ATVI) to Neutral; Lowers Estimates After Disappointing Sales

Piper Jaffray & Co downgrades Activision Blizzard, Inc. (Nasdaq: ATVI) to Neutral. Price target lowered from $13 to $12.

Piper analyst says, "Game hardware and software sales have been a colossal disappointment for 8-months. Hardware unit sales are on a path to decline ~10% Y/Y and software sales are expected to decline ~5%. We expect flat hardware unit sales during CY10 & CY11 and project software will grow 10% during CY10 and decline 10% in CY11. Company management teams remain overly optimistic and investors should consider that CY09-CY11 is not expected to produce $1 of category sales growth. Almost every management team in the sector has been dead wrong on category sales all year. We cannot stress enough that this cycle is driven by the casual gamer, who buys significantly fewer games than avid gamers did in prior cycles. As for the publishers, our thesis suggests that large publishers will transition to a "slow-growth, high-return, low asset growth" consumer products business model during the next few years. Despite Activision's impressive management, late-cycle demand variability makes it challenging to provide sustained growth. The fact that no next-generation game consoles are on the horizon makes it difficult to invest in the category. We expect game publishers and retailers will trade at surprisingly low multiples for a sustained period...We are reducing our December quarter EPS (from $0.46 to $0.43) due primarily to higher operating costs...We expect CY10 guidance well below Street - expect EPS guidance @$0.70."

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