Stock Ticker: Activision Blizzard
Bobby Kotick's pronouncements may infuriate gamers - but do they really delight investors, as is so often claimed?
However, while considering that aspect might smooth out the lines on the graph somewhat, it doesn't alter the fact that EA and Take Two are dramatically outperforming the NASDAQ, while Activision has only nudged slightly ahead of the composite index in the past couple of months. Why is that?
The answer lies back in the most fundamental aspect of how markets work: they reward growth, and get excited about growth potential. Activision Blizzard operates the most successful and profitable massively multiplayer game in history, and remarkably manages to keep its subscription numbers well over 10 million even after so many years on the market. But WoW is a known entity, its parameters baked into ATVI's valuation already, its potential for growth fairly limited. Bioware's The Old Republic, on the other hand, could give EA several million dedicated MMO subscribers, a whole new business bringing a fresh cashflow to the publisher. It's easy to see which of the two things investors will be more excited about.
EA and Take Two are actively trying to create huge new franchises, and far from running off to find safe harbour with the likes of ATVI stock, the markets are rewarding their risk-taking
The same logic applies, for example, to the present high-profile spat between Battlefield 3 and Modern Warfare 3. Nobody with the slightest bit of insight doubts that Modern Warfare 3 is going to be the better-selling game - quite possibly matching its older siblings to join the ranks of the best-selling games of all time - but Activision always releases a massive Call of Duty game for Christmas. EA's challenge to the franchise promises to give Battlefield 3 a huge sales boost, even if it's unlikely to dent CoD's figures much in the process. Again, investors care more for EA's growth than for Activision's sustained but familiar success.
What the market data suggests, more than anything else, is that investors see Activision as extremely solid. There are some things that spook them a little - the high profile decision to put the Guitar Hero franchise to bed, and the negative press it attracted, for example. The publisher's inability to control Blizzard's release schedule also makes revenue projections very difficult, although given that the studio's perfectionism is a core part of its ability to keep on laying golden eggs, it's unlikely that many investors would want to see that particular aspect changed. Overall, Activision's share price weathers storms very handsomely (even the 2008 financial crisis) and shows solid if unexciting growth, focused around holiday quarters.
So is Kotick really delivering what the markets want, as he cuts an abrasive swathe through the specialist gaming sector time and again? Perhaps - for a certain section of the investment community, at least. Solid, slow-burning stocks are always extremely popular, for obvious reasons. On the other hand, though, there's some indication that the markets share the concerns of gamers and other commentators (myself included) regarding Activision's future product strategy, and the likelihood that it will struggle to build new "pillars" to join products like CoD and WoW. EA and Take Two, by contrast, are actively trying to create huge new IPs and franchises, and far from running off to find safe harbour with the likes of ATVI stock, the markets are rewarding their risk-taking and their growth potential.
The Old Republic could give EA several million dedicated MMO subscribers, a whole new business bringing a fresh cashflow to the publisher.
The core question about Activision remains unanswered, then. Kotick's talent and ability to exploit and monetise an existing franchise is unquestionable, but his strategy for finding new franchises to build up into pillars of his business remains to be seen. The firm's deal with Bungie may yet bear abundant fruit, of course, but in the meantime, while Activision's expert franchise-milking may be yielding record-breaking sales year on year, it's clear that some corners of the investment world wouldn't object to a bit more risk and bit more opportunity in the company's future plans.