UNIVERSITY OF OREGON
INVESTMENT GROUP
12/04/2009
Technology
Activision Blizzard, Inc.
RECOMMENDATION: HOLD
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta (Regression)
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
$8.14 - $13.14
ATVI / NASDAQ
0.625
1,271,000,000
16,067,500
14,476,690,000
Current Price
Dividend
Dividend Yield
$11.39
N/A
N/A
Valuation (per share)
DCF Analysis
Comparables Analysis
Target Price
Current Price
$15.25
$4.74
$12.10
$11.39
Summary Financials
Revenue
Net Income
2008A
$3,026,000,000
-$107,000,000
Covering Analyst: Sean Golin
Email: sgolin@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
Activision Blizzard, Inc.
university of oregon investment group
http://uoig.uoregon.edu
BUSINESS OVERVIEW
Activision Blizzard, Inc. is located in Santa Monica, CA. They are responsible for creating and publishing video
games and accessories. These games are distributed and available on a wide range of platforms across the globe.
Additionally, Activision Blizzard maintains and operates Battle.net, a online-game service in which players can connect
via the internet and play with each other online. Activision Blizzard has created some of the most recognized and
successful game franchises including, Call of Duty, Guitar Hero, Tony Hawk, Spider-Man, James Bond, Starcraft,
Diablo, Warcraft, and the #1 online subscription-based game in the world, World of Warcraft.
Activision Blizzard, Inc. takes part in licensing agreements that enable them to publish games based on another
company’s products. For example, in order to create and publish the Spider-Man franchise, license agreements were
obtained with Marvel.
Publishing is the key segment, which generates the large majority of revenues. This segment is responsible for
creating, marketing, and sales of their products. Activision Blizzard sells their products to mass retail outlets,
electronics stores, game specialty stores, etc.
Distributing accounts for a small portion of revenue. This contains the production of the video game software and
accessories. They also sell this service to other video game publishers who don’t have a distribution system in place.
BUSINESS AND GROWTH STRATEGIES
The strongest areas for growth recently have been in the online gaming sector. The market for online-based games
has grown dramatically. Since 2000, online subscriptions for massively multiplayer online games has risen by an
average of 47% per year in the US. Activision Blizzard is positioned perfectly for this with the current presence of
World of Warcraft. Additionally, Starcraft II and Diablo III plan to be released within the next 2 years.
The largest market that is poised for rapid growth in the video game industry is China. As their economy shifts, more
and more gaming consumers are at the forefront of this industry. With a sales office, distributing center, and studio
already in Shanghai, China, Activision Blizzard is ready to handle the increased capacity that is stemming from the
Chinese market.
Mergers and acquisitions has been a large part of Activision Blizzard’s growth strategy. Past mergers and acquisitions
have been very successful. They seek out game publishers who have a strong line of quality games that can be
expanded upon. Past mergers and acquisitions include Blizzard Entertainment, RedOctane, and Bizzare Creations. It
may be feasible for Activision Blizzard to look at acquiring competitor, Take-Two Interactive. Although a smaller
player, Take-Two does have a great track record of successful game franchises that Activision Blizzard could take
advantage of.
MANAGEMENT AND EMPLOYEE RELATIONS
CEO, Robert A. Kotick, has been with Activision Blizzard since February 1991. In addition to his duties as CEO, he
is also a member of the board of directors. Kotick also has served on the board of directors of Yahoo!, Inc. since
March 2003.
2
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RECENT NEWS

November 27, 2009 - Call of Duty® Franchise Surpasses $3 Billion in Retail Sales Worldwide. This shows
how Activision Blizzard is able to expand on successful gaming franchises and continually develop their
games to appeal to worldwide markets.

November 27, 2009 - CEO, Robert Kotick responds to WSJ article that video game sales are weakening.
While Kotick did admit that there are economic concerns, the great thing about the video game industry is
that the $ cost/per hour of entertainment heavily outweighs any other form of entertainment.

November 22, 2009 – Activison Stock Looks Inexpensive (Barron’s). Barron’s believes the stock in
undervalued especially after the biggest first week of sales in video game history from Call of Duty: Modern
Warfare 2. Barron’s expects the stock to be priced at $15 to $16 within the next year.
INDUSTRY
Activision Blizzard, Inc. operates within the software publishing industry. While as a whole, this industry is extremely
competitive, they operate exclusively in the video game sector. Interestingly enough, the demographics of the video
game industry have been shifting as of recent years. Only 60% of today’s gamers are male. This trend shows that
there is a market for female gamers and that games need to be marketed to both gender audiences. In addition, 27%
of today’s gamers are over the age of 50, with an average gamer age of about 39 years old. Appealing to an older
audience, also seems to be a growing trend in this industry.
The video game publishing industry needs to be segmented to appeal to certain markets. First, is the console gaming
industry, with the primary players being Microsoft, Sony, and Nintendo. Unfortunately, there are high costs
associated with video game publishing for such consoles. When one of these major console manufacturers release a
new console, product development for video game publishers increases as they need to format new products to match
the new console’s requirements. Currently, the primary consoles in the video game industry are Microsoft’s Xbox
360, Sony’s Playstation 3, and Nintendo’s Wii. The Nintendo Wii has been revolutionary in regards to showing that
gamers are looking for an interactive experience. This enabled video game publishers the opportunity to grow their
titles to include interactive peripherals, such as Activision’s Guitar Hero series. In addition to consoles such as the
Xbox 360, Playstation 3, and Wii, these console manufacturers have produced handheld gaming devices as well (ex.
Sony PSP and Nintendo DS). These handheld devices are geared towards younger audiences. This allows video game
publishers an opportunity to gear their popular titles toward this younger demographic.
Perhaps the most widely used “console” in the video game industry is the computer. This worldwide gaming machine
has been the most rapidly growing in the video game publishing industry. Because its worldwide use and evergrowing online game segment, this is the video game publishing’s largest market. However, due to the most rapid
increases in technology, product development costs steadily increase. As Mac computers continue to grow in
popularity, video game publishers need to be able respond to the increased use. Currently, many video game
publishers exclusively develop games for PC’s, as this is more cost effective. Expanding popular game titles to Mac
users may be worth the additional costs.
As stated earlier, the number of subscription-based online game users have been growing been at an average of 47%
per year in the US. The leader of this segment being the World of Warcraft series. There are far fewer games that are
more anticipated than the release of a large MMORPG. In addition, to being the fastest growing aspect of the video
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game publishing industry, it also provides the greatest margins. Consumers purchase the initial product, generating
revenue, then must pay a monthly subscription fee in order to play it, generating a constant revenue stream.
Publishers can create “expansions” available for purchase to existing users. Since the expansions must fit the same
system requirements as the initial product, development costs remain fairly low as the adaption to new technologies is
very minimal.
The video game publishing industry will continue in future years. As new technologies become available, gamers will
be able to experience bigger and better entertainment. As we have seen, the typical gamer is shifting from the public
perception of the adolescent male to an older, less gender-specific audience. The video game publishing industry
needs to encapsulate this trend in order to continue to be successful. Although recession can negatively affect the
industry, sales will remain strong because video games provide the best $ spent/per hour of entertainment than any
other form of entertainment. Activision Blizzard is poised to take advantage of the interactive video game segment
with their 4Q releases of DJ Hero and Tony Hawk, as well as, the computer online-gaming segment with releases of
Starcraft II and Diablo III in the near future. As being the leader in the video game publishing industry, I am
optimistic about the future of Activision Blizzard, Inc.
S.W.O.T. ANALYSIS
Strengths




Strong line of successful game franchises that can be expanded.
Licensing agreements with major companies to produce big-name titles.
Positioned for continued success from the growth of the subscription-based online gaming industry.
Mergers and acquisitions add to revenue and expand business to capture new audiences.
Weaknesses




High product development costs.
Key revenue drivers are from a smaller number of game franchises.
High risk in developing new/unproven franchises.
Seasonal demand can negatively impact quarterly statements.
Opportunities







New gaming platforms to expand titles (potential creation of own platform).
Expansion of increased titles to new gaming outlets (iPhone apps, etc.).
Increase use of interactive peripherals.
Acquiring other publishing companies with strong titles.
Potential for movie deals based on hit gaming titles.
In-game advertisement.
Expansion into growing international markets.
Threats

Government regulation and ratings association could negatively certain titles.
4
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



International regulation may make it difficult to enter/operate in some markets.
Failure of high cost titles.
Changing economic conditions that negatively affect consumer spending.
Ever-changing platforms increase costs associated with product development.
CATALYSTS
Upside
Activision Blizzard, Inc. relies are providing gamer consumers with products that are innovative and exciting. Having
such strong game franchises under their belt, they are poised to take advantage of expanding these titles. Activison
Blizzard, Inc. is one of the leaders in interactive gaming with the Guitar Hero, Tony Hawk, etc. franchises. With the
announcement of Starcraft II and Diablo III coming in the near future, they are in line to take advantage of not only
building on successful past titles, but capturing the growth of the online PC-gaming market.
Downside
Weakening economic conditions can put strong downward pressure on Activision Blizzard, Inc. By losing revenue to
weak sales data, the stock price suffers. Being able to release games timely in heavy spending seasons is critical. With
the upcoming holiday season, not being able to release a game in time can be harsh on earnings. However, Activision
Blizzard, Inc. was able to release the most anticipated games of the year before the holidays this year, including
Modern Warfare 2, Tony Hawk, and DJ Hero.
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COMPARABLES ANALYSIS
Activision Blizzard, Inc. generates most all of its revenue from video game publishing and distribution. When
choosing comparable companies I wanted to choose those that generated their revenue in the same way. Since these
companies generate revenue the same with similar products, the same risks would apply to them as well. For this
analysis I chose Electronic Arts (ERTS), Take-Two Interactive (TTWO), and THQ Inc. (THQI).
Electronic Arts (ERTS) – 33.3% Weighting
“Electronic Arts Inc. develops, markets, publishes, and distributes video game software and content. Its software and
content are playable on various consumer platforms, such as video game consoles, personal computers, handheld
game players, and wireless devices, such as cellular and smart phones. The company develops and markets a portfolio
of games under the EA brand in categories, such as action-adventure, role playing, racing, and combat games; and
massively-multiplayer online role-playing games under the EA Games label. It also provides a collection of sportsbased video games, such as simulated sports based on real-world sports leagues, players, events, and venues, as well as
casual games with arcade-style gameplay and graphics under EA SPORT label. In addition, the company creates
games under EA Play label for core and non-core gamers of various ages, which include life simulation games, The
Sims and MySims; and games published under licenses, such as Harry Potter under license from Warner Bros.; and
video games based on Hasbro board games and toys. Further, it offers casual games, such as card games, puzzle
games, and word games through its Pogo online service, as well as provides Internet-based advertising and digital
content; and games and other content for wireless devices through wireless carriers. The company provides its
products through mass market retailers, electronics specialty stores, game software specialty stores, online stores, and
mail-order, as well as distributors. It has operations in North America, Europe, Australia, Asia, and Latin America.
Electronic Arts Inc. was founded in 1982 and is headquartered in Redwood City, California.” –Yahoo! Finance
Electronic Arts was chosen because of the large number of similarities it shares with Activision Blizzard, Inc. It
generates its revenue through publishing and distributing video game software. Additionally, they operate with a very
successful line of video games, most famous being their Madden football game franchise. Just as Activision Blizzard,
Inc. obtains license agreements to publish games, EA does the same as evident in its publishing of the Harry Potter
games. Both companies provide online services for gamers and all products are sold through the same retail outlets.
EA is subject to the same economic and product risks as Activision Blizzard. After looking at these factors, I believe
an equal weighting of 33.3% will suffice for this comparables analysis, as all other companies selected share similar
details.
Take-Two Interactive (TTWO) – 33.3% Weighting
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“Take-Two Interactive Software, Inc. publishes, develops, and distributes interactive entertainment software,
hardware, and accessories worldwide. The company’s product offerings include titles for various platforms, including
PlayStation3 and PlayStation2 computer entertainment systems, PlayStationPortable system, Xbox 360 video game
and entertainment system from Microsoft, Wii, and Nintendo DS, as well as for the personal computer. It publishes
and develops products through its wholly owned labels Rockstar Games and 2K, which publish titles under 2K
Games, 2K Sports, and 2K Play. The company, through its subsidiary, Jack of All Games, also distributes software,
hardware, and accessories in North America. Take-Two’s proprietary brand franchises include Grand Theft Auto; Sid
Meier's Civilization; Max Payne; Midnight Club; Manhunt; Red Dead Revolver; Bully; BioShock; Sid Meier's
Railroads!; Sid Meier's Pirates!; Carnival Games; and Top Spin. Its licensed brands include the sports games Major
League Baseball 2K; NBA 2K; and NHL 2K. The company sells its software titles to retail outlets through direct
relationships with large retail customers and third party distributors. Take-Two’s customers include mass
merchandisers, specialty retailers, video stores, electronics stores, toy stores, national and regional drug stores, and
supermarket and discount store chains. The company was founded in 1993 and is headquartered in New York, New
York.” –Yahoo! Finance
Just like Activision Blizzard and Electronic Arts, Take-Two operates in the video game publishing industry and
maintains revenue through game sales from retail outlets. Take-Two has been successful through expanding on
proven popular titles such as Grand Theft Auto and their 2K sports franchise. While being susceptible to the same
risks as Activision Blizzard, Inc., I also chose a 33.3% weighting for Take-Two in my comparables analysis.
THQ, Inc. (THQI) – 33.3% Weighting
“THQ Inc., together with its subsidiaries, engages in the development, publishing, and distribution of interactive
entertainment software for various game systems worldwide. It offers video games, and other interactive software and
content for play on home video game consoles, such as Microsoft Xbox 360, Nintendo Wii, Sony PlayStation 3, and
Sony PlayStation 2; handheld platforms, including Nintendo Dual Screen and Game Boy Advance, PSP portable
entertainment system, and wireless devices; personal computers; and online. The company’s titles span various
categories comprising action, adventure, fighting, racing, role-playing, simulation, sports, and strategy. THQ markets
and distributes games to mass merchandisers, consumer electronic stores, discount warehouses, and other national
retail chain stores directly, and to grocery and drug stores through regional retailers and distributors, as well as games
through Internet and iPhone in North America, Europe, and the Asia Pacific. The company was founded in 1989 and
is based in Agoura Hills, California.” –Yahoo! Finance
Although THQ is the smallest of my comparables, in terms of market cap, they are still weighted the same as
Electronic Arts and Take-Two at 33.3%. This is justified because of the similar business model and the generation of
revenue through video game publishing and distribution. THQ operates a strong portfolio of titles through a variety
of genres. Since THQ’s products are sold in the same retail outlets as Activision Blizzard, EA, and Take-Two, they
are open to the same risks associated in this market.
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Metrics
I chose three key metrics that I felt were essential in valuing the stock of Activision Blizzard, Inc. EV/Revenue was
the first metric used. Since all comparable companies used generate their revenue through very similar processes,
EV/Revenue is a very important metric to use in this valuation. Weighting for EV/Revenue was set at 40%, given
the similarities. In addition, EV/Gross Profit was used. Much like EV/Revenue, EV/Gross Profit was selected
given that since these companies generate revenue the same, their cost of goods sale will be affected equally.
Therefore, EV/Gross Profit was applied a 40% weighting as well. Lastly, EV/EBITDA was used. Activision
Blizzard, Inc. has taken part in several acquisitions and mergers, increasing their assets. This also makes depreciation
rather high. Additionally, tax rates can vary among companies and the locations they operate in. Therefore, EBITDA
became the best measure to use as it disregards the depreciation from acquisitions and taxes assumed throughout
operations. Unfortunately, Electronic Arts has a large negative EV/EBITDA and THQ has a very small
EV/EBITDA. Therefore, I chose to weight this multiple only at 20%, as it did not appear to as relatable to the
business of Activision Blizzard, Inc. As a result, my comparables analysis yielded an implied price of $4.74, achieving
an overvaluation of the ATVI’s current $11.39 stock price (11/30/2009) of 58.34%. Out of the comparables, all of
them are operating with negative trailing twelve months net income. Meanwhile, Activision Blizzard is posting strong
net income this year, which is expected to continue in the future. Therefore, I opted to weight my comparables
analysis at 30% for my final ATVI stock price derivation.
DISCOUNTED CASH FLOW ANALYSIS
Throughout my discounted cash flow analysis, the percentage of sales method was used. This enabled me to reflect
on historic information as well as future guidance to project forward.
Revenues
Revenue growth was project using company guidance from conference calls, growth in global markets, and industry
growth estimates. For the 4th quarter 2009 projections, I relied on information based on sales of their marquee games
being released including Call of Duty: Modern Warfare 2, Tony Hawk, and DJ hero. Modern Warfare 2 is anticipated
to account for $2 billion worth of Q4 2009 revenues and has already sold $550 million worth in the first week of
release. For 2010, revenues were projected to grow by another 22.45%, stemming from released of their PC game
franchises Starcraft II and Diablo III. Going forward, it is difficult to project growth without key information about
game releases. Therefore, IBIS world and company guidance were used to project over the following nine years based
on industry growth as a whole.
Key Statistics
I wanted to remain conservative in my estimates of future projections. The video game industry changes very rapidly
and is near impossible to predict when major changes will occur. Releases of major video games and major consoles
will have a large effect on revenues and costs. However, staying conservative, I projected revenues based on industry
growth and used a constant % of revenue cost of goods sold projection as it is extremely difficult to predict when
these changes will occur. Activision Blizzard, Inc. has the resources available and distribution networks in place to
respond and adapt to these changes, if they were to occur.
Activision Blizzard does look to acquire small video game publishers with a strong portfolio of successful games.
Although difficult to predict when and who, capital expenditures were grown year to year to encompass any potential
acquisitions that may be made over the coming years.
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Beta
Beta for Activision Blizzard, Inc. was determined by running a regression against the S&P 500 for the past 5 years of
monthly data. In turn, this resulted in a beta for ATVI of 0.625. Although comparable companies have much higher
betas passed on a regression analysis (ERTS = 1.308, TTWO = 1.26, THQI = 2.256), I believe this is still an accurate
representation. ATVI has the largest market cap out of these comparable companies and is the only one that is
operating with positive trailing twelve month net income. As a result, the lower beta appears to be accurate given this
data.
DCF Implied Price
After completing the DCF analysis, an implied price of $15.25 was the result. This shows an undervaluation of
33.91% from the current $11.39 stock price as of 11/30/2009. I chose to weight my DCF analysis at 70%, given that
Activision Blizzard is the largest of its comparable companies with the strongest financials.
RECOMMENDATION
With a 70% weight from the DCF analysis and a 30% weight from the comparables analysis, we derive at an overall
target price of $12.10. This shows that the stock, ATVI, is currently undervalued by 6.21%. Activision Blizzard will
see continue to see growth from its already popular game titles, online-gaming genre, and international demand. They
are positioned well to handle any changes in technology or consumer trends. In conclusion, I am recommending a
HOLD of ATVI for all portfolios.
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APPENDIX 1 – COMPARABLES ANALYSIS
Weight
Price
52 Weeks (Range)
Shares Outstanding
Beta (Regression)
Market Cap
Enterprise Value
Cash and Short Term Investments
Long-term Debt
Revenue (TTM)
Gross Profits (TTM)
COGS (TTM)
EBITDA (TTM)
Metrics
EV/Revenue
EV/Gross Profit
EV/EBITDA
Comparables Analysis
Activision Blizzard Electronic Arts Take-Two Interactive THQ
33.33%
33.33%
33.33%
$11.45
$17.25
$11.42
$4.92
$8.14 - $13.14 $14.24 - $23.76
$5.56 - $12.81 $2.23 - $9.03
1,271,000,000
324,000,000
76,994,000
67,462,000
0.625
1.308
1.26
2.256
$14,552,950,000 $5,589,000,000
$879,271,480 $331,913,040
$11,831,950,000 $3,964,000,000
$842,482,480 $222,993,040
$2,721,000,000 $1,625,000,000
$174,789,000 $208,920,000
$0
$0
$138,000,000 $100,000,000
$4,361,000,000 $3,946,000,000
$948,530,000 $872,360,000
$1,833,000,000 $1,758,000,000
$246,360,000 $155,170,000
$2,528,000,000 $2,188,000,000
$702,170,000 $717,190,000
$828,000,000 ($394,000,000)
$55,480,000 $314,740,000
2.713
6.455
14.290
1.005
2.255
-10.061
0.888
3.420
15.185
0.256
1.437
0.708
Weighted Average Implied Value
Weight
0.7161
$4.60
40%
2.3705
$5.56
40%
1.9443
$3.41
20%
Implied Price
$4.74
Current Price
$11.39
Under (Over) Valued -58.34%
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APPENDIX 2 – DISCOUNTED CASH FLOWS ANALYSIS
(Amounts in Millions)
Net Revenue
Growth Rate
Total COGS
% of Revenue
Gross Profit
% of Revenue
Total Operating Expenses
% of Revenue
Operating Income (Loss)
% of Revenue
Investment Income (Loss), Net
% of Revenue
Income (Loss) Before Income Tax Benefit
% of Revenue
Income Tax Provision
Tax Rate
Net Income (Loss)
% of Revenue
Add Back: Depreciation and Amortization
% of Revenue
Add back: Interest Expense
Current Assets
% of Revenue
Current Liabilities
% of Revenue
Net Working Capital
% of Revenue
Change in Working Capital
Cash Flow from Operations
Capital Expenditures
% of Revenue
Free Cash Flow
PV of FCF
Discount
2007A
$1,349
$436
32.32%
$913
67.68%
$734
54.41%
$179
13.27%
($4)
-0.30%
$175
12.97%
($52)
-29.71%
$227
16.83%
$63
4.67%
$0
$333
24.68%
$528
39.14%
($195)
-14.46%
$290
$68
5.04%
2008A
$3,026
124.31%
$1,839
60.77%
$1,187
39.23%
$1,420
46.93%
($233)
-7.70%
$46
1.52%
($187)
-6.18%
($80)
42.78%
($107)
-3.54%
$385
12.72%
$0
$2,493
82.39%
$2,320
76.67%
$173
5.72%
$368
($90)
$46
1.52%
($136)
2009Q1-Q3A
$2,722
2009Q4E
$2,910
$1,295
47.58%
$1,427
52.42%
$1,021
37.51%
$406
14.92%
$21
0.77%
$427
15.69%
$28
6.56%
$399
14.66%
$385
14.14%
$0
$1,787
65.65%
$1,230
45.19%
$557
20.46%
$1,387
47.68%
$1,523
52.32%
$1,063
36.53%
$460
15.79%
$25
0.86%
$485
16.65%
$163
5.60%
$322
11.05%
$327
11.25%
$0
$1,910
65.65%
$1,645
56.53%
$265
9.12%
-$292
$941
$47
1.62%
$894
$877.37
0.25
$784
$75
2.76%
2009A+E
$5,632
86.12%
$2,682
47.63%
$2,950
52.37%
$2,084
37.00%
$866
15.37%
$46
0.82%
$912
16.18%
$191
20.95%
$721
12.79%
$712
10.50%
$0
$1,910
33.91%
$1,645
29.21%
$265
4.71%
$92
$1,341
$122
2.17%
$1,219
2010
$6,896
22.45%
$3,310.26
48.00%
$3,586
52.00%
$2,689.59
39.00%
$897
13.00%
$57.24
0.83%
$954
13.83%
$305.21
32.00%
$649
9.40%
$689.64
10.00%
$0
$2,758.55
40.00%
$2,068.92
30.00%
$690
10.00%
$425
$914
$137.93
2.00%
$776
$707.97
1.25
2011
$8,000
16.00%
$3,839.91
48.00%
$4,160
52.00%
$3,119.92
39.00%
$1,040
13.00%
$66.40
0.83%
$1,106
13.83%
$354.04
32.00%
$752
9.40%
$639.98
8.00%
$0
$3,219.92
40.25%
$2,399.94
30.00%
$820
10.25%
$130
$1,262
$180.00
2.25%
$1,082
$918.04
2.25
2012
$9,040
13.00%
$4,339.09
48.00%
$4,701
52.00%
$3,525.51
39.00%
$1,175
13.00%
$75.03
0.83%
$1,250
13.83%
$400.06
32.00%
$850
9.40%
$542.39
6.00%
$0
$3,661.11
40.50%
$2,711.93
30.00%
$949
10.50%
$129
$1,263
$225.99
2.50%
$1,037
$818.17
3.25
2013
$10,034
11.00%
$4,816.39
48.00%
$5,218
52.00%
$3,913.32
39.00%
$1,304
13.00%
$83.28
0.83%
$1,388
13.83%
$444.07
32.00%
$944
9.40%
$401.37
4.00%
$0
$4,088.92
40.75%
$3,010.25
30.00%
$1,079
10.75%
$129
$1,216
$275.94
2.75%
$940
$688.88
4.25
2014
$10,987
9.50%
$5,273.95
48.00%
$5,713
52.00%
$4,285.09
39.00%
$1,428
13.00%
$91.20
0.83%
$1,520
13.83%
$486.26
32.00%
$1,033
9.40%
$329.62
3.00%
$0
$4,504.83
41.00%
$3,296.22
30.00%
$1,209
11.00%
$130
$1,233
$329.62
3.00%
$903
$615.68
5.25
2015
$11,976
9.00%
$5,748.61
48.00%
$6,228
52.00%
$4,670.74
39.00%
$1,557
13.00%
$99.40
0.83%
$1,656
13.83%
$530.02
32.00%
$1,126
9.40%
$359.29
3.00%
$0
$4,940.21
41.25%
$3,592.88
30.00%
$1,347
11.25%
$139
$1,347
$389.23
3.25%
$958
$606.71
6.25
2016
$13,054
9.00%
$6,265.98
48.00%
$6,788
52.00%
$5,091.11
39.00%
$1,697
13.00%
$108.35
0.83%
$1,805
13.83%
$577.72
32.00%
$1,228
9.40%
$326.35
2.50%
$0
$5,417.46
41.50%
$3,916.24
30.00%
$1,501
11.50%
$154
$1,400
$456.89
3.50%
$943
$555.49
7.25
2017
$14,229
9.00%
$6,829.92
48.00%
$7,399
52.00%
$5,549.31
39.00%
$1,850
13.00%
$118.10
0.83%
$1,968
13.83%
$629.72
32.00%
$1,338
9.40%
$355.73
2.50%
$0
$5,940.61
41.75%
$4,268.70
30.00%
$1,672
11.75%
$171
$1,523
$533.59
3.75%
$990
$541.76
8.25
2018
$15,510
9.00%
$7,444.61
48.00%
$8,065
52.00%
$6,048.75
39.00%
$2,016
13.00%
$128.73
0.83%
$2,145
13.83%
$686.39
32.00%
$1,459
9.40%
$387.74
2.50%
$0
$6,514.04
42.00%
$4,652.88
30.00%
$1,861
12.00%
$189
$1,657
$620.38
4.00%
$1,037
$527.57
9.25
2019
$16,905
9.00%
$8,114.63
48.00%
$8,791
52.00%
$6,593.14
39.00%
$2,198
13.00%
$140.32
0.83%
$2,338
13.83%
$748.17
32.00%
$1,590
9.40%
$422.64
2.50%
$0
$7,142.56
42.25%
$5,071.64
30.00%
$2,071
12.25%
$210
$1,803
$676.22
4.00%
$1,127
$532.91
10.25
11
Activision Blizzard, Inc.
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
10 Year Treasury
Beta (Regression)
Market Risk Premium
% Equity
% Debt
Return on Debt
Return on Equity
WACC
Assumptions
3.201%
Terminal Growth Rate
0.625
Terminal Value
7.00%
PV Terminal
100.00%
Σ PV of Free Cash Flow
0.00%
Long Term Debt
N/A
Firm Value
7.576%
Shares Outstanding
7.576%
Implied Price
Current Price
Undervalued
3.00%
$25,356.30
$11,995.08
$7,390.56
$0
$19,385.64
1,271
$15.25
$11.39
33.91%
APPENDIX 4 – BETA SENSITIVITY ANALYSIS
β
1.241
1.087
0.933
0.779
0.625
0.471
0.317
0.163
0.009
Beta Sensitivity
Standard Error = 0.308
σ
Implied Price Under (Over) Valued %
2
$8.12
-28.71%
1.5
$9.16
-19.58%
1
$10.54
-7.46%
0.5
$12.45
9.31%
0
$15.25
33.91%
-0.5
$19.79
73.75%
-1
$28.37
149.08%
-1.5
$50.74
345.48%
-2
$255.90
2146.71%
12
Activision Blizzard, Inc.
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 5 – BETA REGRESSION STATISTICS
Regression Statistics
Multiple R
0.257290845
R Square
0.066198579
Adjusted R Square 0.050098554
Standard Error
0.110358552
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
X Variable 1
1
58
59
SS
MS
F
Significance F
0.050076517 0.050076517 4.111706717 0.047189916
0.706382583 0.01217901
0.7564591
Coefficients Standard Error
t Stat
P-value
Lower 95%
Upper 95% Lower 95.0% Upper 95.0%
0.021027935
0.01425659 1.474962395 0.145630625 -0.007509731 0.049565601 -0.007509731 0.049565601
0.625097585
0.3082739 2.02773438 0.047189916 0.008020335 1.242174836 0.008020335 1.242174836
13
Activision Blizzard, Inc.
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 6 – SOURCES

UOIG Members (Audrey Zhao, Matt Doty, Tyler Stone, Sheldon Summers, Lee Lenker)

Yahoo! Finance

Google Finance

IBIS World

Activision Blizzard Investor Relations

SEC Filings

Gamespot

IGN
14