Activision Blizzard (NASDAQ: ATVI), which competes with Electronic Arts (NASDAQ: ERTS) and THQ (NASDAQ: THQI), did all right in the third quarter. The publisher reported adjusted earnings per share of $0.07. That was two cents better than what analysts were counting on. As a shareholder of the company, I was pleased to see that. I was also pleased that a $1 billion stock buyback was announced.
However, I wasn't so pleased by the cautious tone of CEO Bobby Kotick. You can tell he thinks the recession may put a damper on all the rockin' fun that Activision Blizzard is having with its Guitar Hero franchise. Indeed, the market is pricing in the risk of owning Activision Blizzard shares these days.
Before, I was used to what seemed like a constant capital appreciation of my position. Now, that feeling is gone, as the stock has been struggling. The stock, in fact, was near a 52-week low at the close of trading on Wednesday. That doesn't feel right, does it? Activision Blizzard should still sell a lot of software for the Sony (NYSE: SNE) PlayStation 3, the Microsoft (NASDAQ: MSFT) Xbox 360, and the Nintendo (OTC: NTDOY) Wii platforms. Not only is the new Guitar Hero making waves, but a fresh version of Call of Duty is forthcoming.
I think the holiday-selling season will be good to Activision Blizzard, but I will express hope that the CEO is not taking anything for granted. Considering the success the company has had the last couple years, taking things for granted is always a risk. He needs to understand that no matter how great the publisher's franchises are, there's going to be so much competition in terms of capturing all the discretionary consumer dollars that will be floating around at the malls the next seven weeks or so.
Kotick is lucky that he has some powerful entertainment brands at his disposal. I believe that many parents will ignore the recession and do their best to ensure that their teenage gamers are able to pretend they're guitar players and/or soldiers in battle on Christmas morning.
Activision Blizzard could be a decent buy right now, but I would advise using a tight stop in case you don't feel like being a long-term investor. Volatility, after all, hasn't gone away.
Disclosure: I own Activision Blizzard; positions can change at any time.
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