Activision Blizzard - Henry Fund
Activision Blizzard - Henry Fund
Activision Blizzard - Henry Fund
We recommend a BUY rating for Activision Blizzard as the Direct end consumers: through Battle.net
company is poised to grow in the next console cycle, platform
expected to release in late 2018. The company dominates Platform providers: Sony, Microsoft (MSFT),
in the FPS genre games with 3 huge franchises. Moreover, Apple (AAPL)
it acquired the world leader in mobile games, King Digital, Retailers: Walmart (WMT), GameStop (GME)
which will bring strong innovation to the segment.
Moreover, the company’s new PC games has witnessed For the fiscal year (FY) 2016, Sony and Apple accounted for
increased popularity over the last 2 years. 13% of the net revenues, whereas for FY 2015, Sony and
Microsoft accounted for 12% and 10% of the net revenues
Another huge factor that will drive the business is the respectively.1
entry into new eSports segment. Activision, with its
Overwatch title, has created its own championship league
in eSports expected to start later this year. eSports is a
huge market currently untapped in the US markets. This
will help the eSports segment to grow at a CAGR of 20% of
the next couple of years.
COMPANY DESCRIPTION & ANALYSIS Data Source: ATVI, SEC filings, 10-K 2017
Founded in 1979, the Santa Monica, California based
Products: The games developed by Activision cover a wide
company, Activision Blizzard, is a leading developer and
range of genres: first-person shooter (FPS),
publisher of interactive entertainment (Video-games)
action/adventure, role-playing games (RPG), strategy and
software and services. The company distributes the
match-three games (tile-matching: Candy Crush)
content and services on all major gaming platforms: video-
game consoles, personal computers (PCs), mobile devices The services offered by the company include:
and other handheld devices.1 The merger of Activision Inc.
and Vivendi Games in 2008 resulted in the formation of the Full games: access to main game content (console
parent company, Activision Blizzard.2 On February 23, or PC)
2016, the company acquired King Digital Entertainment, a Downloadable content (DLC): additional in-game
leading interactive mobile gaming company, at an content to purchase following purchase of full
aggregate price of $5.8 billion.3 game
Microtransactions: small parts of additional in-
As of January 2017, Activision is one of the largest third- game content of enhancements for gameplay (at
party video-game publishers globally, as well as the top low price)
publishers for 2016 in the US.4 (Appendix:1) Subscriptions: continual access to game content
online
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REVENUE DECOMPOSITION: Consoles
Activision Blizzard reports and breaks down its revenue in This segment deals with the video-game sales for the
4 different ways: gaming home console platforms (mostly the television
consoles). These consoles first appeared in 1972, and are
Business segments (Activision, Blizzard, King and currently in their eighth generation. (Appendix:2)
Others)
Platforms (Consoles, Mobile, PC, Online and The top 3 eighth generation consoles are:
others)
Distribution Channels (Digital online, retail and Sony’s PlayStation 4 (64.9 million units)
other) Microsoft’s (MSFT) Xbox One (31.2 million units)
Geographic segments (Americas, EMEA and Asia Nintendo WiiU (13.96 million)
Pacific)
Activision publishes and markets games for these
Although our report and thesis involve research on all the consoles. Nintendo’s WiiU was released worldwide in
different methods, we try to focus our revenue growth November 2012, whereas PlayStation 4 and Xbox One
forecasts purely on platforms segmentation. We believe were both released in November 2013. However, the
that each platform has its own drivers and growth factors, company still earns revenues from sales of games on
and thus is a more efficient tool for forecasting. previous generation (7th generation) consoles, namely
PlayStation 3, Xbox 360 and Nintendo Wii.
Platform Segments:
Recent financial performance: In FY 2015, Activision’s
Activision’s revenues are divided into four segments on console segment accounted for 51.3% of the net revenues
the basis of platforms: ($2.39 billion). The 8th generation consoles accounted for
nearly 63% ($1.49 billion) of console revenues and the 7th
Consoles: (PS4, Xbox One, WiiU) generation consoles accounted for the rest.1 In FY 2016,
PC and Online this segment’s revenue contribution dropped to 37.1%,
Mobile and Ancillary after the acquisition of King Digital. The company did not
Others: (eSports, Studios, Distribution) provide the revenue breakdown for sub-segments in
consoles. However, the trend indicates that the 7th
Until fiscal year 2015, the Consoles, as well as PC and generation consoles generated less than 5% of the total
Online segments accounted for more than 80% of the net console revenues in FY 2016.
revenues. However, after the acquisition of King Digital in
2016, the company’s Mobile and Ancillary business gained
incremental revenues, accounting for roughly 25% of net
revenues in FY 2016.
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models adopted by console manufacturers. Moreover, We estimate the console revenues to grow at CAGR of
they estimate the console gaming to generate $33.5 billion 3.52% through 2025, driven by FPS games (Call of Duty,
in revenues globally in 2017, with digital revenues Destiny and Overwatch). We might see cyclicity in the
accounting for two-thirds of these revenues.7 (Appendix: 3) revenue growth of consoles over the next 5 years.
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PC revenues have grown 3 folds over the past three years
boosted by increased sales from top FPS games, StarCraft
and Hearthstone. Users are shifting towards PC gaming for
role-playing and strategy games. The online revenues from
DLCs and extension packs are adding to the growth.
Forecast: With new better story lines in Call of Duty After the Activision’s acquisition of King Digital
franchises and new features in MMORPG game World of Entertainment in February 2016 (See: King Digital
Warcraft and Hearthstone, coupled with increasing Acquisition), the company strengthened its mobile games
demand for digital expansion packs, we believe the portfolio by a margin. King Digital not only added 494
segment is poised to grow at a CAGR of 5.15% through million Monthly Active Users (MAUs) and 141 million Daily
2025. Active Users (DAUs), but also added $2 billion to the
revenue stream.9 On a worldwide basis, King’s Candy Crush
PC and Online Segment Saga and Candy Crush Soda Saga were among the top 10
2014 2015 2016 2017E 2018E 2019E grossing games for the full year 2015 on both Apple App
Revenue store and Google Play store. Other games added to the
1,418 1,499 2,124 2,166 2,296 2,480
($ Mil) arsenal were Farm Heroes, Pet Rescue and Bubble Witch
Growth 13.3% 5.7% 41.7% 2.0% 6.0% 8.0% Saga.
Data Source: Henry Fund Projections; ATVI SEC filings, 10-K
According to Think Gaming, Candy Crush Saga still
generates nearly $2.15 million sales daily with more than
60,000 daily downloads.10 On the other hand, Candy Crush
Soda generates $1.24 million daily and 26,000 daily
downloads.10
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Recent financial performance: Due to lack of Other
groundbreaking mobile game titles in the market,
Activision’s Mobile and Ancillary segment’s revenues We believe this segment will the company’s next growth
dropped from $703 million in FY 2012 to $418 million in FY driver, with 19% CAGR growth over the next 5 years,
2015. King’s incremental revenues drove the segment’s primarily driven by entry to huge eSports market. The
revenue up 42% y-o-y. On the other hand, the ancillary segment deals with three sub-segments: Major League
revenues from Skylanders’ toys and accessories added to Gaming (MLG) or eSports business, Studio business and
the growth. The segment’s revenue contribution jumped Distribution business.
from 10% in FY 2014 to 25.3% in FY 2016.
eSports (Market Growth): Also known as Electronic
Market Growth: Acquiring one of the strongest player in sports, it is competitive professional gaming competitions
the mobile and casual gaming segment is a strategically between professional players on a multiplayer platform.
robust move. According to Newzoo report, mobile gaming The common genre of games competitively played in
is the most lucrative segment, with smartphone and tablet eSports are real-time strategy, fighting, FPS and
gaming estimated to grow 19% y-o-y in 2017. Multiplayer online battle arena (MOBA). The major
Furthermore, the report suggests that the mobile gaming tournaments for this sport are ‘The International’, the
will account for 50% of the total global gaming market by League of Legends Worlds Championship, the Evolution
2020.7 Championship Series and the Intel Extreme Masters
(IEM).11 These sports provide huge cash prize money to
Forecast: We estimate the mobile and ancillary segment winners and the competition are broadcasted live on
for Activision to grow at a CAGR of 5.44% through 2025, various platforms. These organized competitions have
driven primarily by increasing mobile gaming users for been there for a long time but were played among the
Candy Crush series and Call of Duty series. The increasing amateurs until late 2000s.
number of smartphones and tablet circulations
worldwide, as well as strong expertise of King Digital will Gradually gaining popularity over the past decade, global
be the key driving factors for this segment. eSports posted revenues of roughly $900 million in 2016,
with Asia leading the market with more than one-third of
Mobile and Ancillary Segment the market share. (Appendix: 4) These revenues are
2014 2015 2016 2017E 2018E 2019E estimated to grow up to $3.5 billion by 2021, driven
Revenue majorly by ad-spend.12
433 418 1,674 1,774 1,863 1,994
($ Mil)
Growth -31.2% -3.5% 300.5% 6.0% 5.0% 7.0%
Data Source: Henry Fund Projections; ATVI SEC filings, 10-K
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stages of the 3 big eSports tournaments witnessed over 90 Strike: Global Offensive. Off lately, titles such as StarCraft
million unique viewers. The 3 big factors that will drive the II, Call of Duty, Hearthstone and Overwatch, all of them
industry’s growth:14 owned by Activision, have started gaining popularity.
Increasing attendance and digital viewership: the Studios: This unit deals with creating original movie and
IEM World Championship 2017 in Poland, television content based on the company’s IPs. In October
witnessed 173K viewers to stadium, up 53% y-o-y. 2016, it released the 1st season of animated TV series,
It was the most watched event in the history with Skylanders Academy on Netflix (NFLX). Although not huge,
46 million unique viewers. this unit has a slight growth potential to contribute
additional revenue as the company creates more original
content for Netflix.
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FY 2016: Call of Duty, Candy Crush, World of titles: COD MW1 (2007), COD MW2 (2009) and COD MW3
Warcraft (WoW) and Overwatch- collectively (2011), released on all major gaming platforms. The
accounting for 69% of net revenues ($4.56 billion) Modern Warfare titles have generated net 74.58 million
FY 2015: Call of Duty, World of Warcraft (WoW), units in sales as of now.5 The PlayStation and Xbox
Destiny and Hearthstone – collectively accounting consoles accounted for 41.3% and 51% of the total MW
for 75% of net revenues ($3.5 billion) unit sales, with PC accounting for merely 5% of volume
FY 2014: Call of Duty, World of Warcraft (WoW), sales.
Skylanders and Diablo – collectively accounting for
75% of net revenues ($3.3 billion) On the other hand, Black Ops series is one of the most
successful story line of this franchise. The 4 Black Ops
Call of Duty (COD) titles: World at War, Black Ops 1, 2 and 3, in total
accounted for 104.77 million units in sales as of now.5 The
Call of Duty is a first-person shooter (FPS) video game PlayStation and Xbox consoles accounted for 41% and
franchise, which first started off as a PC game but is now 50.6% of these sales respectively.
highly popular on the consoles, primarily because of their
online community base and multiplayer game popularity.
Call of Duty has been the top FPS game worldwide for the
last 7 years, except 2016. The only top-tier console game
that competes with the same game sales worldwide is
Electronic Arts’ FIFA franchise. Due to the unmotivating
story line and no special features in Call of Duty: Infinite
Warfare (2016), the sales took a hit. As a result, the gamers
shifted to other FPS games, such as Sony’s Uncharted 4,
Activision’s Overwatch and Electronic Arts’ Battlefield 1.
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players into 2 teams of six, and each player chooses one of
the 25 rosters available. Since its release, it has been
recognized more as an eSports game. As a result, Activision
created a professional gaming league based on this game,
yet to start later this year.
Skylanders
It is a toys-to-life action game, where game is played by
placing character figurines on a portal, that reads the
figures’ tag through NFC (Near Field Communication)
technique. Its first edition was released back in 2011. Since
then the company has released a new version every year,
with the latest version released in 2016 called Skylanders:
Imaginators. This edition is also planned to release on
Since, the company is bringing back the World War II story Nintendo Switch, the upgraded console from Nintendo.
this year with Call of Duty: World War II yet to release on
November 3, 2017.6 We believe the Call of Duty sales, This game not only earns revenue from game sales, but
although lower than their previous counterparts, will still also from the sales of toys and accessories required to play
remain strong for Activision in 2017 and 2018 driving the the game. It is the most successful game in Kids gaming
console sales by 5.5% in 2018. The gamers historically tend genre.
to opt for a game with better story line. Moreover,
according to the trend in console cycle (See: Seasonality), SEASONALITY
we generally see a boost in sales before the release of new
consoles, which we believe will be out in later 2018 or early The video-game publishing and developing industry is a
2019. According to our estimates, Call of Duty will be low cyclical business in two ways:
in 2017 as well, but will be back in 25 million range by
Hardware Console Cycle: Hardware here refers to
2018.
the video-game consoles, namely Sony’s
PlayStation, Microsoft’s Xbox and Nintendo’s Wii.
Destiny Historically, these consoles are released every 4-5
It is an online-only multiplayer role-playing FPS game, first years. The latest version (eighth generation) of
released in September 2014. It was developed by the Nintendo’s console: the Nintendo WiiU was
makers of the famous Halo franchise. It is set in a post- released in November 2012, whereas the
apocalyptic world and works on shared-world PlayStation 4 and Xbox One were both released in
environment. It was released on all major platforms November 2013.
(PlayStation and Xbox). Further expansion packs to the
game in 2015 and 2016 has kept the volume sale of this Historically, just before the release of new
franchise in top 100 games of the year for the past 2 years. generation consoles, the software game sales
trend up. In this period, gamers generally avoid
Activision released the full game sequel to the franchise, buying the old consoles and wait a year or two for
Destiny 2, on PS4 and Xbox One on September 6, 2017. The the new consoles. They rather spend that money
PC version of the game will be released in late October on new game titles, boosting up the software
2017. Although it is a vast improvement to its predecessor, sales. On the other hand, at the start of new
the first month sales of this game were down 50% y-o-y console cycle (just after the new consoles are
compared to its first version. released), gamers tend to upgrade and spend
more money on hardware. As a result, software
Overwatch sales take a hit.
FORECASTING
Software Cycle: Although each video-game
publisher and developer release video-games Revenue
throughout the year, most of the big franchise
games, such as Activision’s Call of Duty, Destiny,
Overwatch and Skylanders, as well as Electronic
Arts’ (EA) FIFA and Madden NFL, are released near
the end of 3rd quarter or in the 4th quarter. The
strategy behind this is to release the game as close
to the holiday season (December end) as possible,
as users generally tend to spend more during this
period. However, the pre-orders of the game are
generally released a month before the actual
release to generate hype.
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Margins SALES & MARKETING, GENERAL AND ADMINISTRATIVE
EXPENSES
COST OF GOODS SOLD
Historically, sales and marketing expenses increased from
The cost of goods sold (including Depreciation and 12.7% ($544 mil) of the sales in 2009 to 15.7% ($734 mil)
Amortization costs) as a percentage of sales decreased of sales in 2015. Furthermore, the acquisition of King
from 54% in 2009 to 36% in 2016, primarily due to shift Digital drove up this expense to 18.3% of the sales in 2016.
towards digitalization and shift towards online games. As the company is trying to get into new markets (eSports),
Moreover, the cost required to develop a new franchise is we believe the figure will rise to 20% of the sales in the
higher than just revamping the old edition and coming up next two years before coming back to 17% of the sales by
with a new story. Furthermore, the shift towards mobile the end of our forecasting period (2025).
and casual games would further reduce the cost. As a
result, we estimate the cost of goods sold to drop to 33% Similarly, the G&A as percentage of sales is estimated to
in FY 2017, giving a boost to the gross profits (67% in FY jump from 9.6% ($634 mil) in 2016 to 12.87% ($876 mil) in
2017). Thereafter we expect the cost to further decrease 2017, and thereafter normalizing back to 11.25% ($1.2 bil)
to 22% by 2025. by the end of 2025.
PRODUCT DEVELOPMENT EXPENSES Source: ATVI 10-K SEC filings, Henry Fund Model Projection
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The firm updated its FY 2017 revenue from $6.1 billion to
$6.4 billion, whereas it expects its Q3 revenues to drop
12% y-o-y at $1.385 billion. We estimate the FY 2017
revenues to grow 3% y-o-y and overperform than the
company guidance. The company is expected to release its
Q3 FY’17 report on November 3, 2017.19
Change in Leadership
Coddy Johnson, who held several positions at Activision
from 2008 to 2016, including CFO and head of operations
of Activision Publishing positions, left the company to help
lead a private-school company. The company recently
announced that he returned to the company to serve as
President and COO, effective June 2017.20 Previous Chief
Source: ATVI 10-K SEC filings, Henry Fund Model Projection
Operating Officer, Thomas Tippl is now made the Vice
RECENT DEVELOPMENTS Chairman.
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Electronic Arts (EA) companies (TTWO and ATVI) to grow in double-digits over
the next couple of years.
Electronic Arts is another giant player in the video-game
industry, that specializes and dominates in the sports Activision has an advantage of a diverse and rich game
game genre. The key products for EA are its FIFA and portfolio as compared to Take-Two Interactive.
Madden NFL franchise. Recently, the company has
stepped up in the FPS genre with its Titanfall and ECONOMIC OUTLOOK
Battlefield franchises. FIFA and Madden NFL are the
company’s biggest cash generating franchises, with FIFA Increasing global GDP
generating most of its cash from Europe and Asia, whereas
Madden NFL makes almost all revenues from North According to IMF, economic activity is estimated to gain
America. momentum in 2017, after a sluggish growth in 2016.
Advanced economies are expected to grow by 1.90% in
EA is trading at a multiple of 29.9, much lower than that of 2017 and 2.00% in 2018.26 The key driving factor will be the
Activision. Although EA has also stepped up its game in the economic growth in emerging markets and developing
eSports segment with the introduction of the Madden NFL economies (EMDE), which is estimated to be roughly 4.5%
Club Championship, we believe Activision has an upper in 2017. GDP growth will translate to increased disposable
hand with dominance in FPS games and mobile gaming. incomes and better consumer markets. Much of the
Historically, gamers opt to stay away from sports genre economic outlook depends on the new US administration
games in eSports leagues and prefer role-playing and and its policies with foreign nations. U.S. GDP grew at an
shooter games more. Moreover, Activision has an upper annual rate of 3.1% in the second quarter of 2017
hand in the mobile gaming segment and PC segment as compared to 1.2% annualized growth rate in the first
well. Thus, Activision is appropriately trading at a premium quarter of 2017.27 The rise in GDP in 2nd quarter indicates
over EA. an upturn in the private inventory investment and federal
government spending, as well as deceleration in imports.
EA’s margins are close to 23%, way more than Activision, Real Gross Domestic Income (GDI) rose 2.9% in the 2nd
primarily because they have had favorable years with quarter, compared to 2.7% increase in the 1st quarter of
digital revenues. As a result, EA’s ROE is close to 28%, as 2017.
compared to 13.4% for Activision. In terms of unit sales,
Call of Duty has historically beaten FIFA sales worldwide Real GDI (Gross Domestic Income), on the other hand,
over the past 5-6 years. As a result, EA has been working increased 2.9% in second quarter compared to 2.7% in first
on getting into FPS genre as well. EV/EBITDA multiple for quarter.
both the firms are comparable at 20.8.
INVESTMENT POSITIVES
• Activision’s Call of Duty, Destiny II and Overwatch will be
the drivers for the console segment. Call of Duty has been
the top selling FPS game for the past 8 out of 10 years, and
will remain s strong cash cow for the company
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• eSports market might not accept Activision’s FPS games Cost of Debt
as much as role-playing strategy games, such as Dota 2 and
League of Legends To find cost of debt, we looked at Moody’s credit rating for
Activision’s new note offerings, which was Baa2, implying
VALUATION a default premium of 1.60%. We then added that default
premium to a risk-free rate (30-year treasury rate. This
Revenue projections for FY 2017 are based on individual gave us the pre-tax cost of debt of around 4.42%.
segmental revenue forecast and company’s guidance. (See
Company Description, Page: 2-10) Due to improved COD BETA
and Destiny titles in the coming 2-3 years for consoles and
A raw Bloomberg Beta of 1.16 was used for our
PC, increasing demand for mobile and handheld casual
calculations.
gaming, tremendous growth potential in eSports market
and growing contribution of digital revenues, we estimate COST OF EQUITY
the revenues to grow at a CAGR of 6.3% through FY 2025.
To determine cost of equity, we used a CAPM model. Our
Capital expenditure forecast is based on company’s long- model incorporates a market risk premium of 4.8%, which
term guidance to spend more on new innovative games reflects our expectations of forward-looking market
and on eSports leagues. We estimate the capital conditions. This resulted in 8.40% cost of equity.
expenditure to fluctuate between the range 1.1% to 1.3%
of the total revenues over the next few years. WACC
Our calculations are based on three varying valuation Our weighted average cost of capital, through a CAPM
methods – Discounted Cash Flow, dividend discount, and model was 7.98%.
relative multiple (P/E). Differences in these methods
revealed a model range of $48-72. However, the dividend DCF/EP Models
discount model is insignificant as the company has a low
payout ratio, and it may not correctly translate to intrinsic Our model assumes a 4% terminal growth rate for
value. The relative multiple models are difficult to use for NOPLAT. Our DCF price of $71.57 implies an upside of 16%
this company as the direct competitors in the US market from the current stock price. This is justified by
are merely two (EA and TTWO). Moreover, TTWO is incremental income resulting from growth mobile and
trading at an unusually high forward multiple because of eSports division. Moreover, the company looks strong in
one-time low earnings. Other competitors such as capturing majority of the growth in console and PC
Microsoft (MSFT) and Walt Disney (DIS) have a different markets after the release of the next generation consoles.
product mix, of which gaming segment is a very small part.
As a result, there are not enough samples to use. If we take Sensitivity Analysis
International competitors, we get even more skewed
Sensitivity analysis of our DCF model suggests that the
price, because of the different interest risk and market risk
price estimate is highly sensitive to 3 key metrics: beta, CV
scenario in those markets.
NOPLAT growth, and Sales & Marketing as percentage of
Thus, the more accurate DCF model gives a price estimate sales. We used a beta of 1.16 for our model. With 0.96 as
of $70.57 implying an upside of roughly 16% from the our beta, we estimate the company’s stock price to reach
current market price. $96.85.
Page 16
sensitive to cost of debt, risk-free rate, marginal tax rate 23. UN Department of Economic and Social Affairs- World
and depreciation rate forecast. Population forecasts
24. Population facts, United Nations, May 2015
REFERENCES 25. Global Market Study on Smartphones, Persistence
Market Research, Sep 2016
1. Activision Blizzard, SEC filing 10-K, December 31, 2016 26. IMF- World Economic Outlook January 2017
2. Investor relations, Activision Blizzard, 27. US Real GDP estimates, Bureau of Economic Analysis,
www.investor.activision.com, Dec 2, 2007 September 28, 2017
3. Activision Blizzard completes King acquisition, Investor 28. Unemployment Rate, Bureau of Labor Statistics,
relations, Activision Blizzard, September 18, 2017
www.investor.activision.com, Feb 23, 2016 29. Activision Blizzard's 'Overwatch' eSports League Lands
4. Top 25 companies by game revenues, Owners From NBA, NFL, MLB; www.fortune.com, July
www.newzoo.com, June 2017
12, 2017
5. www.VGChartz.com, Call of Duty, August 2017
6. Call of Duty: WW2 Release date, www.eurogamer.net, 30. The NFL and EA Sports Are Launching a 'Madden NFL'
June 10, 2017 E-Sports Tournament; www.fortune.com, August 21,
7. Global Games Market, Newzoo, April 20, 2017 2017
8. Global Online gaming market, Technavio, May 2016 31. Virtual Reality Companies: Top 20 VR Companies to
9. King Digital Entertainment, SEC Filings, 6-K, Feb 11, Watch, www.datamation.com, July 12, 2017
2016
10. Think Gaming, Candy Crush data
IMPORTANT DISCLAIMER
11. eSports, Wikipedia
12. eSports revenues to reach $3.5 billion by 2021, Juniper Henry Fund reports are created by student enrolled in the
research, Mar 14, 2017 Applied Securities Management (Henry Fund) program at
13. SuperData, eSports Market Report the University of Iowa’s Tippie School of Management.
14. The eSports audience is escalating quickly, Business These reports are intended to provide potential employers
insider, Mar 20, 2017 and other interested parties an example of the analytical
15. Twitch’s 100 million viewers watched 800 million skills, investment knowledge, and communication abilities
hours of eSports in the last 10 months, of Henry Fund students. Henry Fund analysts are not
www.venturebeat.com, June 10, 2016 registered investment advisors, brokers or officially
16. Why Activision-Blizzard just launched a new eSports licensed financial professionals. The investment opinion
division, www.fortune.com, Oct 22, 2015 contained in this report does not represent an offer or
17. Activision Blizzard, Investor Relations, Jul 12, 2017 solicitation to buy or sell any of the aforementioned
18. Activision Blizzard, 8-K SEC filing, Aug 3, 2017 securities. Unless otherwise noted, facts and figures
19. Activision Blizzard to release Q3 earnings, Investor included in this report are from publicly available sources.
relations, Oct 5, 2017 This report is not a complete compilation of data, and its
20. Activision’s Hires Greeted With $40 Million Welcome accuracy is not guaranteed. From time to time, the
Package, Bloomberg Technology, May 11, 2017 University of Iowa, its faculty, staff, students, or the Henry
21. Activision hires new CFO from Disney, Bloomberg Fund may hold a financial interest in the companies
Technology, May 10, 2017 mentioned in this report.
22. Activision Blizzard completes King Acquisition, Investor
Relations, Feb 23, 2016
Page 17
APPENDIX:1
Source: www.newzoo.com
Page 18
APPENDIX: 2
Page 19
APPENDIX: 3
APPENDIX: 4
Page 20
Activision Blizzard
Revenue Decomposition
(figures in $ millions)
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Total Platform Revenues:
Console 2,150.0 2,391.0 2,453.0 2,403.9 2,536.2 2,650.3 2,716.5 2,933.9
PC and Online 1,418.0 1,499.0 2,124.0 2,166.5 2,296.5 2,480.2 2,653.8 2,826.3
Mobile and Ancillary 433.0 418.0 1,674.0 1,774.4 1,863.2 1,993.6 2,113.2 2,218.9
Other (MLG, Studios, Distribution) 407.0 356.0 357.0 464.1 594.0 742.6 891.1 1,069.3
Total Revenue 4,408.0 4,664.0 6,608.0 6,809.0 7,289.8 7,866.6 8,374.6 9,048.3
% Platform Revenues:
Console 48.8% 51.3% 37.1% 35.3% 34.8% 33.7% 32.4% 32.4%
PC and Online 32.2% 32.1% 32.1% 31.8% 31.5% 31.5% 31.7% 31.2%
Mobile and Ancillary 9.8% 9.0% 25.3% 26.1% 25.6% 25.3% 25.2% 24.5%
Other (MLG, Studios, Distribution) 9.2% 7.6% 5.4% 6.8% 8.1% 9.4% 10.6% 11.8%
Total % Platform Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
% Revenues:
Activision 60.9% 57.9% 33.6% 30.1% 29.7% 29.2% 28.7% 28.5%
Blizzard 39.0% 33.6% 36.7% 37.7% 37.2% 36.6% 36.0% 35.7%
King Digital 0.0% 0.0% 24.0% 25.4% 24.9% 24.7% 24.6% 23.9%
Other (MLG, distribution) 9.2% 7.6% 5.5% 6.8% 8.1% 9.4% 10.6% 11.8%
Deferral of net revenues -9.2% 0.9% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Total % Revenue 100.0% 100.0% 100.0% 100.0% 100% 100.0% 100.0% 100.0%
%Geographic Revenues:
Americas 49.7% 51.7% 51.8% 52.0% 52.0% 52.1% 52.1% 52.1%
EMEA 41.4% 37.3% 33.6% 33.4% 33.6% 33.5% 33.5% 33.5%
Asia Pacific 8.9% 11.0% 14.6% 14.6% 14.4% 14.4% 14.4% 14.4%
Total % Geographic Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Annual Dividends $ 0.20 $ 0.23 $ 0.26 $ 0.30 $ 0.44 $ 0.56 $ 0.66 $ 0.73
Dividend payout Ratio 17% 19% 20% 24% 24% 22% 22% 22%
Dividends paid 143.2 167.4 192.4 222.5 325.9 419.4 493.9 548.5
Activision Blizzard
Balance Sheet
(figures in $ millions)
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
ASSETS
Current Assets:
Cash and cash equivalents 4,848.0 1,823.0 3,245.0 5,058.3 6,243.8 8,169.5 10,323.8 12,507.5
Short-term investments 10.0 8.0 13.0 11.4 11.1 16.3 22.4 26.4
Accounts Receivables 659.0 679.0 732.0 817.1 801.9 865.3 921.2 995.3
Inventories 123.0 128.0 49.0 136.2 127.6 137.7 125.6 135.7
Software development 452.0 336.0 412.0 424.5 454.5 490.5 522.1 564.1
IP licenses 5.0 - - - - - - -
Deferred income taxes, net - - - - - - - -
Other current assets 444.0 413.0 379.0 390.5 418.1 451.2 480.3 519.0
Total Current Assets 6,541.0 3,387.0 4,830.0 6,838.0 8,057.0 10,130.4 12,395.5 14,748.0
Stockholders' Equity:
Common Stock and Paid-in Capital 9,924.0 10,242.0 10,442.0 10,575.7 10,709.3 10,843.0 10,976.7 11,110.4
Treasury stock (5,762.0) (5,637.0) (5,563.0) (5,763.0) (6,263.0) (6,363.0) (6,463.0) (6,563.0)
Retained Earnings 3,374.0 4,096.0 4,869.0 5,591.8 6,650.4 8,137.2 9,888.3 11,833.2
Accumulated other comprehensive income (303.0) (633.0) (629.0) (629.0) (629.0) (629.0) (629.0) (629.0)
Total Stockholders' Equity 7,233.0 8,068.0 9,119.0 9,775.5 10,467.7 11,988.3 13,773.0 15,751.5
Total Liabilities and Stockholders' Equity 14,642.0 15,246.0 17,452.0 18,797.2 19,619.3 21,570.3 23,767.4 26,203.1
Activision Blizzard
Cash Flow Statement
(figures in $ millions)
Fiscal Years Ending Dec 31 2014 2015 2016
Operating Activities:
Net Income 835.0 892.0 966.0
Adjustments to reconcile net income:
Deferred income taxes (44.0) (27.0) (9.0)
Impairment of goodwill - - -
Provision for inventories 39.0 43.0 42.0
Depreciation 76.0 82.0 121.0
Amortization 13.0 13.0 708.0
Amortization of capitalized software development costs and IP licenses 257.0 399.0 321.0
Premium payment for early redemption of note - - 63.0
7.0
Amortization of debt discount, financing costs, and non-cash write-off due to extinguishment 7.0
of debts 50.0
Share-based compensation 104.0 92.0 147.0
Other 1.0 - 4.0
Changes in operating assets and liabilities
Accounts receivables (177.0) (40.0) 84.0
Inventories (2.0) (54.0) 32.0
Software development and IP licenses (349.0) (350.0) (362.0)
Other assets 18.0 21.0 (10.0)
Deferred revenues 475.0 (27.0) (35.0)
Accounts payables (12.0) (25.0) (50.0)
Accrued expenses and other liabilities 90.0 233.0 83.0
Net cash provided by Operating Activities 1,331.0 1,259.0 2,155.0
Investing Activities:
Proceeds from maturities of available-for-sale investments 21.0 145.0 -
Proceeds from auction rate securities called at par - - -
Purchases of available-for-sale investments - (145.0) -
Acquisition of businesses - (46.0) (4,588.0)
Release (deposit) of cash in escrow - (3,561.0) 3,561.0
Payment of contingent consideration - - -
Capital expenditures (107.0) (111.0) (136.0)
Other investing activities 2.0 2.0 (14.0)
Net cash used in Investing Activities (84.0) (3,716.0) (1,177.0)
Financing Activities:
Proceeds from issuance of common stock to employees 175.0 106.0 106.0
Tax payment related to net share settlements on restricted stock rights (66.0) (83.0) (115.0)
Excess tax benefits from stock awards - - -
Repurchases of common stock - - -
Dividends to shareholders (147.0) (170.0) (195.0)
Proceeds from debt issuances - - 6,878.0
Repayment of long-term debt (375.0) (250.0) (6,104.0)
Debt financing costs related to debt issuances - (7.0) (7.0)
Premium payment for early redemption of notes - - (63.0)
Proceeds received from shareholder settlement - 202.0 -
Net cash used in financing activities (413.0) (202.0) 500.0
Effect of exchange rate changes (396.0) (366.0) (56.0)
Net increase (decrease) in cash and cash equivalents 438.0 (3,025.0) 1,422.0
Cash and cash equivalents, beginning of period 4,410.0 4,848.0 1,823.0
Cash and cash equivalents, end of period 4,848.0 1,823.0 3,245.0
Activision Blizzard
Cash Flow Statement
(figures in $ millions)
Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E
Operating Activities:
Net Income 945.3 1,384.5 1,906.2 2,245.0 2,493.4
Adjustments to reconcile net income:
Depreciation 49.0 53.7 58.7 64.1 70.1
Amortization 756.0 361.0 216.0 72.0 11.0
Changes in Deferred income taxes (19.3) 62.9 (15.8) 51.4 (12.9)
Changes in operating assets and liabilities
Accounts receivable (85.1) 15.2 (63.4) (55.9) (74.1)
Inventories (87.2) 8.6 (10.1) 12.0 (10.1)
Software development and IP licenses (14.2) (33.9) (40.7) (35.8) (47.5)
Other assets (11.5) (27.6) (33.1) (29.1) (38.6)
Accounts payable 16.3 16.8 39.9 40.0 26.9
Deferred revenues 49.5 118.5 142.1 125.2 166.0
Accrued expenses and Other liabilities 24.5 58.7 70.4 62.0 82.2
Net cash provided by Operating Activities 1,623.4 2,018.3 2,270.1 2,550.9 2,666.2
Investing Activities:
Change in short-term investments 1.6 0.2 (5.2) (6.1) (4.0)
Change in long-term investments 1.6 0.2 (5.2) (6.1) (4.0)
CAPEX (73.4) (80.1) (87.4) (95.4) (104.1)
Change in intangible assets, net (111.4) 55.7 (27.9) 13.9 (7.0)
Decrease (increase) in other assets (3.4) 26.3 57.0 (3.2) 53.7
Net cash used in Investing Activities (184.9) 2.4 (68.6) (96.9) (65.3)
Financing Activities:
Change in current portion of long-term debt 145.0 - 102.0 146.0 -
Long term debt and other obligations 518.7 (143.0) 7.9 14.5 97.7
Proceeds from issuance of common stock 133.7 133.7 133.7 133.7 133.7
Repurchase of common stock (200.0) (500.0) (100.0) (100.0) (100.0)
Dividends paid (222.5) (325.9) (419.4) (493.9) (548.5)
Changes in Accumulated other comprehensive income - - - - -
Net cash used in financing activities 374.9 (835.2) (275.8) (299.8) (417.2)
Net increase (decrease) in cash and cash equivalents 1,813.3 1,185.5 1,925.7 2,154.2 2,183.8
Cash and cash equivalents, beginning of period 3,245.0 5,058.3 6,243.8 8,169.5 10,323.8
Cash and cash equivalents, end of period 5,058.3 6,243.8 8,169.5 10,323.8 12,507.5
Activision Blizzard
Common Size Income Statement
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
ASSETS
Current Assets:
Cash and cash equivalents 109.98% 39.09% 49.11% 74.29% 85.65% 103.85% 123.27% 138.23%
Short-term investments 0.23% 0.17% 0.20% 0.17% 0.15% 0.21% 0.27% 0.29%
Accounts Receivables 14.95% 14.56% 11.08% 12.00% 11.00% 11.00% 11.00% 11.00%
Inventories 2.79% 2.74% 0.74% 2.00% 1.75% 1.75% 1.50% 1.50%
Software development 10.25% 7.20% 6.23% 6.23% 6.23% 6.23% 6.23% 6.23%
IP licenses 0.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred income taxes, net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other current assets 10.07% 8.86% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74%
Total Current Assets 148.39% 72.62% 73.09% 100.43% 110.52% 128.78% 148.01% 162.99%
Cash in escrow 0.00% 76.35% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Long-term investments 0.20% 0.19% 0.20% 0.17% 0.15% 0.21% 0.27% 0.29%
Software development 0.45% 1.72% 0.82% 0.82% 0.82% 0.82% 0.82% 0.82%
IP licenses 0.41% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Property, plant and equipment, at cost 11.37% 12.80% 12.18% 12.90% 13.15% 13.30% 13.63% 13.76%
Less accumulated depreciation -7.80% -8.75% -8.28% -8.75% -8.91% -9.00% -9.22% -9.31%
Property, plant and equipment, net 3.56% 4.05% 3.90% 4.15% 4.24% 4.29% 4.40% 4.45%
Deferred income taxes, net 5.99% 5.90% 4.28% 4.49% 3.18% 3.18% 2.26% 2.26%
Other assets 1.93% 3.60% 5.87% 4.74% 5.30% 5.02% 5.16% 5.09%
Other Intangible assets, gross 19.06% 18.72% 43.45% 43.80% 40.15% 37.56% 35.11% 32.58%
Intangible assets subject to amortization 9.23% 9.43% 36.89% 37.44% 34.21% 32.05% 29.94% 27.79%
Intangible assets not subject to amortization 9.82% 9.28% 6.55% 6.36% 5.94% 5.50% 5.17% 4.79%
Less accumulated amortization -8.58% -8.38% -15.33% -25.98% -29.22% -29.82% -28.87% -26.84%
Other Intangible assets, net 10.48% 10.33% 28.12% 17.82% 10.93% 7.74% 6.24% 5.73%
Goodwill 160.75% 152.12% 147.82% 143.46% 133.99% 124.17% 116.64% 107.95%
Total Assets 332.17% 326.89% 264.10% 276.07% 269.13% 274.20% 283.80% 289.59%
Stockholders' Equity:
Common Stock and Paid-in Capital 225.14% 219.60% 158.02% 155.32% 146.91% 137.84% 131.07% 122.79%
Treasury stock -130.72% -120.86% -84.19% -84.64% -85.91% -80.89% -77.17% -72.53%
Retained Earnings 76.54% 87.82% 73.68% 82.12% 91.23% 103.44% 118.08% 130.78%
Accumulated other comprehensive income -6.87% -13.57% -9.52% -9.24% -8.63% -8.00% -7.51% -6.95%
Total Stockholders' Equity 164.09% 172.98% 138.00% 143.57% 143.59% 152.39% 164.46% 174.08%
Total Liabilities and Stockholders' Equity 332.17% 326.89% 264.10% 276.07% 269.13% 274.20% 283.80% 289.59%
Activision Blizzard
Value Driver Estimation
(figures in $ millions)
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
MARGINAL TAX RATE:
Federal 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
State 0.0% 0.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Foreign -25.0% -20.0% -22.0% -22.0% -22.0% -22.0% -22.0% -22.0%
Marginal Tax Rate 10.0% 15.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
EBITA
Operating Revenues 4,408 4,664 6,608 6,809 7,290 7,867 8,375 9,048
- Product Cost 1,172 1,167 724 681 729 787 837 905
- Subscription costs 264 323 841 749 802 850 904 977
- Depreciation costs 76 82 121 49 54 59 64 70
- Amortization of Intangible assets 13 13 708 756 361 216 72 11
- Product development expenses 571 646 958 1,021 1,093 1,141 1,214 1,312
- Sales and Marketing expenses 712 734 1,210 1,362 1,458 1,416 1,466 1,583
- General and administrative expenses 417 380 634 876 938 944 963 1,041
+ Implied interest on operating leases 7 6 7 13 14 16 17 19
EBITA 1,190 1,325 1,419 1,328 1,869 2,471 2,871 3,168
NOPLAT
NOPLAT= EBITA - adj taxes + change in DT liabilities 1,023 1,054 1,260 1,122 1,670 2,109 2,520 2,711
Lower of normal or actual cash 3,143 1,823 3,245 4,855 5,198 5,609 5,971 6,452
Accounts Receivables 659 679 732 817 802 865 921 995
Inventories 123 128 49 136 128 138 126 136
Software development and IP licenses 457 336 412 425 455 490 522 564
Other current assets 444 413 379 391 418 451 480 519
Operating Current Assets 4,826 3,379 4,817 6,623 7,000 7,554 8,021 8,666
+ NET PPE
Plant, Property and equipment 157 189 258 282 309 338 369 403
Net PPE 157 189 258 282 309 338 369 403
INVESTED CAPITAL
Invested Capital 2,639 1,358 4,266 5,394 5,194 5,317 5,545 5,935
VALUE DRIVERS
NOPLAT 1,023 1,054 1,260 1,122 1,670 2,109 2,520 2,711
/ Beginning IC 2,945 2,639 1,358 4,266 5,394 5,194 5,317 5,545
ROIC 34.7% 39.9% 92.8% 26.3% 31.0% 40.6% 47.4% 48.9%
Investment Rate -29.9% -121.6% 230.8% 100.6% -12.0% 5.8% 9.0% 14.4%
growth -10.4% -48.6% 214.2% 26.5% -3.7% 2.4% 4.3% 7.0%
Activision Blizzard
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity
Re = Rf + β [ E(Rm) - Rf]
Rf 2.82% based on 30-year treasury
E(Rm)-Rf 4.80% Market premium
Beta (β) 1.16 Raw daily beta- Bloomberg
Re 8.40%
Key Inputs:
CV Growth 4.19%
CV ROIC 50.70%
WACC 7.98%
Cost of Equity 8.40%
Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
DCF Model
Period 1 2 3 4 5 6 7 8 9
NOPLAT 1,122.2 1,669.9 2,108.7 2,519.9 2,711.0 3,062.0 3,186.3 3,353.9 3,471.2
- Capital Expenditures 1,128.4 (200.0) 122.4 227.9 390.5 368.0 315.8 227.8
Free Cash Flow (FCF) (6.2) 1,869.9 1,986.3 2,292.0 2,320.5 2,694.0 2,870.5 3,126.1
CV 84,063.0
Present Value of FCF (5.8) 1,603.8 1,577.7 1,686.0 1,580.8 1,699.6 1,677.2 1,691.5 45,487.1
Value of Operating Assets $ 56,998.0
Excess Cash -
Short-term investments 13.0
Long-term investments 13.0
Value of non-operating Assets $ 26.0
Value of Debt $ 4,387.0
Value of Pfd stock $ -
Others:
PV of operating lease 293.0
PV of employee stock options 1,253.8
Long-term purchase obligations 425.0
Value of other liabilities $ 1,971.8
EP Model
Period 1 2 3 4 5 6 7 8 9
Economic Profit 781.8 1,239.5 1,694.2 2,095.6 2,268.5 2,588.5 2,683.3 2,825.8 2,924.9
CV 77,216.1
TO DISCOUNT
EP 724.0 1,063.1 1,345.7 1,541.6 1,545.4 1,633.1 1,567.8 1,529.0 41,782.2
Total present value of EP $ 52,731.99
Excess Cash -
Short-term investments 13.0
Long-term investments 13.0
Value of non-operating Assets 26.0
Value of Debt $ 4,387.0
Value of Pfd stock -
Others:
PV of operating lease 293.0
PV of employee stock options 1,253.8
Long-term purchase obligations 425.0
Value of other liabilities $ 1,971.8
Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
EPS $ 1.27 $ 1.87 $ 2.57 $ 3.01 $ 3.32 $ 3.69 $ 3.91 $ 4.06 $ 4.22
3.79%
Key Assumptions
CV growth 3.79%
CV ROE 13.37%
Cost of Equity 8.40%
Discounted Cash Flows 0.28 0.38 0.44 0.48 0.49 0.52 0.51 0.51 34.36
as of 10/18/2017
Intrinsic Value $ 37.69 $ 40.19
Activision Blizzard
Key Management Ratios
Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Liquidity Ratios
Current Assets $ 6,541 $ 3,387 $ 4,830 $ 6,838 $ 8,057 $ 10,130 $ 12,395 $ 14,748
/Current Liabilities $ 2,714 $ 2,611 $ 2,656 $ 2,891 $ 3,085 $ 3,440 $ 3,813 $ 4,088
= Current Ratio 2.4 1.3 1.8 2.4 2.6 2.9 3.3 3.6
Cash assets $ 4,848 $ 1,823 $ 3,245 $ 5,058 $ 6,244 $ 8,170 $ 10,324 $ 12,508
/Current Liabilities $ 2,714 $ 2,611 $ 2,656 $ 2,891 $ 3,085 $ 3,440 $ 3,813 $ 4,088
= Cash Ratio 1.8 0.7 1.2 1.7 2.0 2.4 2.7 3.1
Number of days 365.0 365.0 365.0 365.0 365.0 365.0 365.0 365.0
/Accounts receivables turnover 7.5 7.0 9.4 8.8 9.0 9.4 9.4 9.4
= Average collection period 48.4 52.4 39.0 41.5 40.5 38.7 38.9 38.7
Cost of goods sold $ 1,525 $ 1,585 $ 2,394 $ 2,235 $ 1,946 $ 1,911 $ 1,878 $ 1,963
/Average Inventory $ 147 $ 126 $ 89 $ 93 $ 132 $ 133 $ 132 $ 131
= Inventory turnover 10.4 12.6 27.1 24.1 14.8 14.4 14.3 15.0
Number of days 365.0 365.0 365.0 365.0 365.0 365.0 365.0 365.0
/Inventory Turnover 10.4 12.6 27.1 24.1 14.8 14.4 14.3 15.0
= Days in inventory 35.2 28.9 13.5 15.1 24.7 25.3 25.6 24.3
Total Debt $ 4,324 $ 4,074 $ 4,887 $ 5,551 $ 5,408 $ 5,518 $ 5,678 $ 5,776
/ Total Equity $ 7,233 $ 8,068 $ 9,119 $ 9,775 $ 10,468 $ 11,988 $ 13,773 $ 15,752
= Debt to Equity ratio 0.60 0.50 0.54 0.57 0.52 0.46 0.41 0.37
Profitability Ratios
(Sales - COGS) $ 2,883 $ 3,079 $ 4,214 $ 4,574 $ 5,344 $ 5,956 $ 6,497 $ 7,085
/ Sales $ 4,408 $ 4,664 $ 6,608 $ 6,809 $ 7,290 $ 7,867 $ 8,375 $ 9,048
= Gross Margin 65.40% 66.02% 63.77% 67.18% 73.31% 75.71% 77.57% 78.30%
Net Income $ 835 $ 892 $ 966 $ 945 $ 1,384 $ 1,906 $ 2,245 $ 2,493
/ Sales $ 4,408 $ 4,664 $ 6,608 $ 6,809 $ 7,290 $ 7,867 $ 8,375 $ 9,048
= Net Profit Margin 18.94% 19.13% 14.62% 13.88% 18.99% 24.23% 26.81% 27.56%
Net Income $ 835 $ 892 $ 966 $ 945 $ 1,384 $ 1,906 $ 2,245 $ 2,493
/ Average Total Assets $ 14,327 $ 14,944 $ 16,349 $ 18,125 $ 19,208 $ 20,595 $ 22,669 $ 24,985
= Return on Assets 5.83% 5.97% 5.91% 5.22% 7.21% 9.26% 9.90% 9.98%
Net Income $ 835 $ 892 $ 966 $ 945 $ 1,384 $ 1,906 $ 2,245 $ 2,493
/ Average Total Equity $ 6,928 $ 7,651 $ 8,594 $ 9,447 $ 10,122 $ 11,228 $ 12,881 $ 14,762
= Return on Equity 12.05% 11.66% 11.24% 10.01% 13.68% 16.98% 17.43% 16.89%
Profitability Ratios
(Sales - COGS) $ - $ - $ - $ - $ - $ - $ - $ -
/ Sales $ 1,700 $ 1,760 $ 2,802 $ 3,259 $ 3,490 $ 3,501 $ 3,643 $ 3,936
= Gross Margin 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net Income $ - $ - $ - $ - $ - $ - $ - $ -
/ Sales $ 1,700 $ 1,760 $ 2,802 $ 3,259 $ 3,490 $ 3,501 $ 3,643 $ 3,936
= Net Profit Margin 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Dividends paid + repurchases $ 147 $ 170 $ 195 $ 423 $ 826 $ 519 $ 594 $ 649
/ Net Income $ 835 $ 892 $ 966 $ 945 $ 1,384 $ 1,906 $ 2,245 $ 2,493
= Total payout ratio 17.60% 19.06% 20.19% 44.70% 59.65% 27.25% 26.45% 26.01%
Activision Blizzard
Relative Valuation Models
ATVI Activision Blizzard $61.66 1.27 1.87 48.4 32.9 6.7 6.3
Implied Value:
Relative P/E (EPS17) $ 48.71
Relative P/E (EPS18) $ 78.44
P/S Ratio (EPS17) $ 60.06
P/S Ratio (EPS18) $ 65.19
ATVI Activision Blizzard $61.66 1.27 1.87 48.4 32.9 6.7 6.3
Implied Value:
Relative P/E (EPS17) $ 36.38
Relative P/E (EPS18) $ 49.86
P/S Ratio (EPS17) $ 39.28
P/S Ratio (EPS18) $ 39.33
Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)
Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases
Pre-Tax Cost of Debt 4.42% Pre-Tax Cost of Debt 4.42% Pre-Tax Cost of Debt 4.42% Pre-Tax Cost of Debt 4.42%
Number Years Implied by Year 6 Payment 2.9 Number Years Implied by Year 6 Payment 1.8 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.8
Shares Outstanding (beginning of the year) 740,000,000 741,746,105 739,255,356 742,864,929 746,581,478 750,396,709 755,386,408 756,933,215 756,933,215
Plus: Shares Issued Through ESOP 4,989,699 4,989,699 4,989,699 4,989,699 4,989,699 4,989,699 1,546,807
Less: Shares Repurchased in Treasury 3,243,594 7,480,448 1,380,126 1,273,151 1,174,467 - - - -
Shares Outstanding (end of the year) 741,746,105 739,255,356 742,864,929 746,581,478 750,396,709 755,386,408 756,933,215 756,933,215 756,933,215
VALUATION OF OPTIONS GRANTED IN ESOP