Louis Moore Bacon (Trades, Portfolio) bought a 715,000-share stake of Activision Blizzard Inc. (ATVI, Financial) in the first quarter.
Activision Blizzard was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. The company is an online, personal computer, video game console, tablet, handheld and mobile game publisher. Activision offers games that operate on the Microsoft Corp. (MSFT, Financial) Xbox One and Xbox 360, Nintendo Co. Ltd. (TSE:7974, Financial) Wii U and Wii and Sony (SNE, Financial) Computer Entertainment Inc. PlayStation 4 and PlayStation 3 console systems; PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld game systems and other handheld and mobile devices.
The Blizzard Entertainment Inc. operates in the subscription-based massively multiplayer online role-playing game category in terms of both subscriber base and revenues generated through its World of Warcraft franchise, which it develops, hosts and supports. Blizzard also develops, markets and sells role-playing action games for PC and iPad, including games in the Diablo and StarCraft franchises. In addition, Blizzard maintains a proprietary online game-related service, Battle.net.
According to GuruFocus Activision Blizzard has a 6/10 financial strength rating and an 8/10 profitability and growth rating with a 25.57% operating margin ranking it above 92% of the 1,819 companies in the Global Electronic & Multimedia industry.
Activision Blizzard has released some of the most well-known blockbuster video games of all time including Warcraft, World of Warcraft, Hearthstone: Heroes of Warcraft, Starcraft, Diablo and the Call of Duty series of video games. The company produces multiple streams of income from its lucrative subscription services through Battle.net across a wide range of video game consoles and computers.
Activision Blizzard has a market cap of $28.2 billion, an enterprise value of $31.7 billion, a P/E ratio of 34.11 and a P/B ratio of 3.37.
It is possible Bacon was speculating that the new movie "Warcraft" would do well in box offices globally, which may have influenced his decision.
"Warcraft" was released in the U.S. on June 10. Although it has not received great reviews according to Rotten Tomatoes. The film has an average rating of 4.16/10 rating based upon 152 votes.
According to The Hollywood Reporter, as of June 15, Warcraft grossed $29.9 million in North America and $280.5 million in other territories for a worldwide total of $310.4 million, against a budget of $160 million. The film needs to earn at least $450 million in box office sales to break even.
Another reason why Bacon may have decided to invest is the company's solid financial growth over the previous 10 years. The company has revenue growth (10.20%), EBITDA growth (17.80%), free cash flow growth (36%) and book value growth (23.40%) over the previous 10 years. The company is also trading below its intrinsic value according to its DCF (FCF-based) earnings, calculated to be $45.21 according to GuruFocus, which provides Bacon with a 15.39% margin of safety with his investment in Activision Blizzard.
Below is a Peter Lynch Chart for Activision Blizzard.
Conclusion
Activision Blizzard has created some of the most popular video games of all time. The company just released a new movie, "Warcraft," which has the potential to increase the market price of Activision Blizzard. Additionally, the company has 37 years of experience and is trading below its intrinsic value according to GuruFocus.
The company has also reported excellent financial results over the previous 10 years. It is likely that all of these factors had an impact on Bacon's decision to purchase a stake in the company.
Bacon is a North Carolina native who spent his early years growing up in Raleigh before he and his family moved to Virginia where he graduated from Episcopal High School in Alexandria, Virginia. Upon graduation from high school Bacon went on to attend Middlebury College in Vermont where he received his B.A. in American literature in 1979.
During the summer after graduating from Middlebury, Bacon landed a job working on a fishing boat. While working on the sea, Bacon ran into some serendipitous luck when he met Walter Frank, who offered Bacon an opportunity to work for Walter N. Frank & Co. as a clerk during his summer years of college. It was at this time that Bacon started to learn the fundamentals of investing. Bacon later went on to graduate and receive his M.B.A. from Columbia Business School.
In 1989, Bacon used his middle name to found Moore Capital Management which continues to operate today. Bacon is currently ranked as the 959th-richest person in the world with a net worth of $1.87 billion according to Forbes.com
Cheers to your investment success.
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