Let me try my hand at this click-bait title thing…. sarcasm intended…
This again refers to why I stopped wasting time with the official Blizzard (D3) forums. When looking for my remark I had made about Brevik’s comments (for my prior entry), I noticed there were many threads about Activision Blizzard’s (ATVI) falling share price (sort of like a gleeful deathwatch as it dips below $50 per share); like this thread for example. I wouldn’t have even written this if those who are enjoying this share price drop, had at least tried to put some effort/thought into their posting as to the factors they believe are resulting in the declining share price.
First things first though. As I’ve always noted when discussing many topics related to the company, I put a disclaimer in the post noting that I do own shares of the company (just to be fully transparent). And in my “about this blog” section, I make it clear that I “reserve the right to be wrong” which means that anytime a topic covers anything financial/equities related (like this post), means that it shouldn’t be taken as any sort of advice or recommendation (this should be obvious anyway when it comes to important decisions regarding ones own personal finances, people need to perform their own due diligence).
With that said, part of the drop has to do with Activision Blizzard’s weak 4th quarter guidance. For those who are unfamiliar, companies try to give Wall Street analysts and individual investors some visibility on a forward looking basis. Analysts are of course the folks who write their own research papers for their clients using this information which others (like fund managers, utilize to determine what companies equities they should purchase for their various portfolios). There are analysts who cover the gambit (narrow or broad sector coverage, buy-side/sell-side, domestic or international, etc). Fund managers also cover a broad spectrum; they may oversee assets for mutual funds, 401K’s, 403B’s, government employee retirement systems, etc. This of course is not comprehensive since there is much more to it.
For many companies, the 4th quarter is normally one where revenues tend to be higher due to it encompassing the holidays (Black Friday, Cyber Monday, the whole few weeks leading into Christmas). So when the CFO guided 4th quarter expectations downwards, that caused some near term volatility especially for short term day traders as well as short sellers looking to ride the stock down. Another concern was the third straight quarterly decline in monthly active users (this is not CCU’s but actual logins); 345 million versus 352 million in the previous quarter across all franchises.
The other has to do with a broader macro impact afflicting many other technology shares in the last few weeks. Apple for example is down to $176 per share from a high of $221 on November 1st (nearly 20% off its recent high). Amazon was $1799 on October 22nd and is now $1515 as of this post (~16% decline). Around the time of BlizzCon 2018, ATVI was trading well off its 52 week high ($84 intraday high but closing at just a tad under that around October 2nd or 3rd) at around $70. Comparatively speaking, it has dropped around 26% since then (10% came immediately after their 3rd quarter conference call back on November 8th).
Going off on a short tangent, from my own personal years of investing in the market, these kind of drops don’t bother me so long as the fundamentals are still on sound footing. I’ve been through worst in the past because I stuck it out through the 50+% share price in Apple stock back in 2000 and then the subsequent drop post September 11th where until 2003, the stock lost nearly 80% of its value (from its prior all time high). Once the volatility stabilized, I began dollar cost averaging by accumulating shares before the iPod really took off (it was a gamble that ended up paying off once the iPhone was announced in 2007). Basically, I did and still have a somewhat high tolerance to risk where even 50% drops in a share price (where a lot of it is being driven by external factors), is something that doesn’t bother me a lot. It doesn’t mean I’m not paying attention to changes at Blizzard like when it comes to leadership changes (which is why I looked at prior high level executives leaving as a potential sign of future changes as well as the latest big one; Morhaime stepping down).
What I learned the hard way before was to not try to catch a falling knife (thinking the stock has bottomed out in order to dollar cost average) by trying to time the “dip” and loading up the truck (only to watch the share price fall further). The big money (institutional investors; the ones who oversee large amounts of capital, as well as the market makers; the ones who as the term says, tries to insure smooth order flow by matching buyers and sellers) have proven time and time again, to use their sheer buying power to use market sentiment to get weaker holders to sell their shares on the low while they buy those shares, and then ride them up on the next upswing. Many less saavy investors usually use stops which anyone who has subscribed to Level II quotes, can also see. And when push comes to shove, the big money has the ability to take all of these stops out especially during times when the market sentiment is negative. The media tends to tell only a small part of the story when they say things like “investors are selling their shares based on blah, blah, blah” when there is a whole lot more to how Wall Street operates. I’m not heavy into buying/trading on the technicals because I’ve also learned the hard way in the past, to just buy for the long term (plus I had my ass handing to me by day trading back in the mid to late 90’s when internet stocks could move 20-30% each day).
As for ATVI, this hit on their stock price will end up correcting itself in due time because even with this recent Blizzard Entertainment leadership change plus the BlizzCon fiasco, mobile titles like Diablo: Immortal (which I personally consider as drek) will end up doing well in markets that are especially mobile centric (Asia). It will also do decently in the west when it comes to the mobile gaming demographic who aren’t hardcore/loyal Blizzard customers. While Morhaime’s old school “we’ll ship it when it’s ready” approach is being slowly eroded, the overall business fundamentals are still intact. I will say when the last two remaining founders leave (Adham and Pearce), I will do a total re-evaluation of my stance on ATVI as a long-term holding for myself.
