Posted on January 24th, 2022
Activision Blizzard, Inc. (ATVI) underperformed the S&P 500, rising by about 32.7% compared to the S&P 500’s gain of around 33.4%. Hedge funds have been actively buying shares despite recent performance fluctuations, and the stock was added to the WhaleWisdom Index 100 on November 17, 2021.
Activision develops and publishes interactive entertainment content and services appealing to consumers of varying ages, from core gamers to casual players. Activision operates through several subsidiary developers, each producing different video games to form a portfolio of entertainment-related revenue. Activision’s three main segments include Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The Activision Publishing segment delivers online games through digital online channels and retailers; consumers can play the games on their personal computers or mobile devices. Blizzard Entertainment offers subscription-based multiplayer online gaming via personal computers and third-party consoles. Activision’s King Digital Entertainment segment produces and distributes digital games on multiple platforms.
The video game developer experienced growth through much of the coronavirus pandemic, during a time when consumer habits shifted more to home-based entertainment with increased media consumption and virtual interaction. However, Activision faced challenges in recent months over accusations of a toxic work environment and related litigation. On the heels of negative PR, the gaming company recently received some positive attention and a substantial boost to its stock when Microsoft Corp. (MSFT) announced plans to acquire them. The acquisition is part of a bigger focus on the metaverse, the next-generation version of the internet.
Mixed Responses from Hedge Funds and Institutions
Hedge funds were buying, in contrast to institutions. Looking at third-quarter activity by hedge funds, the aggregate 13F shares held increased to about 137.4 million from 118.0 million, an increase of approximately 16.4%. Of the hedge funds, 44 created new positions, 99 added to an existing holding, 54 exited, and 88 reduced their stakes. Institutions sold shares and decreased aggregate holdings by about 1.5% to approximately 655.2 million from 655.3 million. The company saw a substantial rise in 13F metrics between 2015 and 2022, indicating improved investment potential.
Acquisition Announcement Draws Attention
Activision stands to benefit from a future acquisition by Microsoft. Analyst Kash Rangan of Goldman Sachs valued Activision at $95 per share, acknowledging the value the company could bring to Microsoft as it pushes further into the gaming market. Activision is well known for its Candy Crush, Call of Duty, and World of Warcraft games. Gaming is viewed as a critical component for companies to gain ground in the metaverse, as the virtual worlds and avatars within online games offer opportunities for interaction by consumers all around the world.
Despite year-to-date growth and the positives that could arise from Activision’s pending acquisition by Microsoft, the interactive entertainment developer remains, at this time, an independent company navigating lawsuits and workplace improvement plans amid gaming content development. Existing stockholders may choose to hold onto shares and regain their investment following dips in value in November and December 2021. New investors may be cautious but also encouraged by Activision’s track record of successful gaming content and strong demand for entertainment products and services.