Boy, I'll tell you, owning Activision Blizzard (NASDAQ: ATVI) has been tough lately. I love the company's prospects. It's got great franchises: Call of Duty, Guitar Hero, World of Warcraft. It's doing better than rivals Electronic Arts (NASDAQ: ERTS) and THQ (NASDAQ: THQI). But the stock has been hitting a lot of technical resistance. Not only that, but CEO Bobby Kotick recently sold a bunch of shares (over a million, actually).
Well, in terms of that insider sale, we can all relax. Basically, Kotick was exercising options that were set to expire relatively soon, says Barron's. That accounted for one million shares. Now, he did also sell over 240,000 shares that were stored in a trust. The mitigating factor here is that Kotick operates under restrictions as to when he can and cannot sell stock. So, in an overall sense, we can give him a pass on this one. Silicon Alley Insider supports this sentiment, and talks about another insider's sale in similar terms.
Okay, so we can say that Activision Blizzard is probably okay fundamentally. However, shareholders should be aware that the stock does seem to be having technical problems. You don't need to be an expert on technical trading to have noticed the lackluster price action. Indeed, I wrote about the publisher last week and mentioned how the stock broke the $10 level, a price that was offering resistance. Easy come, easy go. The stock closed on Friday at $9.88. What a difference a week makes, huh? Very disappointing. There's also, according to the source cited above, apparently a lot of interest in the put options, which does not put me (pun intended) in a nice mood.
I'm sitting on a decent profit with my Activision Blizzard position, and I am wondering if maybe I should take some off the table, or at least put a stop on. I'm hesitant about getting stopped out too soon considering that I do believe in the longer-term potential of the company. I think, for example, that the company will again sell a lot of software during this year's holiday shopping period (I know, I know, way too early to think about that). And then there's the whole World of Warcraft thing. Don't know much about the specifics of the game, but I know it's a great moneymaking asset. Also, what if we get a surprise price cut from Sony (NYSE: SNE) or Microsoft (NASDAQ: MSFT) on their respective hardware devices? Such a move could propel the stock since there would theoretically be more PlayStation 3 and/or Xbox 360 units installed in households. Nintendo (OTC: NTDOY), as we all know, doesn't need to reduce its price.
When Activision Blizzard's shares broke above $10, I was considering buying on the next pullback. Well, we got it, but with the put activity and the insider selling (no matter what, the market will always be spooked by insider selling, even if there are sane reasons behind it that have nothing to do with growth potential), I don't think I'll add to my position just yet.
Disclosure: I own Activision Blizzard, Microsoft; positions can change without notice.
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Reader Comments (Page 1 of 1)
3-14-2009 @ 5:09PM
TraderGamer said...
The strange thing about ATVI is that they can get a hundred positive news articles, covering everything from their excellent financial position to the "Wow!" factor of their upcoming lineup and the stock price will hardly blip upward. But the moment there is the hint of something negative (like the shares sale, or the worlds.com ridiculous and frivolous lawsuit) then the stock will take a 10% dive.
Is it the reluctance of professionals to accept an industry they don't understand? Is the value of virtual gold so much less than real gold (I'm being facetious, of course)? I just think that the people trading this stock are not doing their homework on the real financial value and the "stickiness" of the value of a good game. Just look at the large volume of players across the world still playing Starcraft or Diablo II or Quake or Unreal Tournament.
3-14-2009 @ 11:19PM
usefulaz said...
You forgot they are in the middle of a stock buyback. They also released that Modern Warfare had 15 million unique players. Modern Warfare 2 will do as well or better. World of Warcraft and the Guitar Hero sequels alone will guarantee the same free cash flow as last year.
You buy put options for the negative news for when someone writes something about the company who has no idea what the game lineup is, how each game works, or how well the lineup will do.