December 3, 2009 / 6:00 PM / 8 years ago

Smart Money Analysis-Activision blockbusters draw Soros, Singh

(Refiles to add word “game” to lead paragraph)

* Major hedge funds snapping up Activision shares

* Game producer has formidable line-up for 2010

By Gabriel Madway

SAN FRANCISCO, Dec 3 (Reuters) - Activision Blizzard’s (ATVI.O) blockbuster video game — “Call of Duty: Modern Warfare 2” — is setting all kinds of sales records, and with a line up of new promising titles, top hedge fund managers like George Soros and Dinakar Singh are taking notice.

Singh’s TPG Axon Capital and Soros’s eponymous fund were among a dozen major U.S. hedge funds snapping up shares of the video-game publisher Activision in the third quarter, according to data compiled by Thomson Reuters.

TPG, which added 4.3 million shares, and Soros Funds, which added 22,000 shares, declined to comment. Other funds buying Activision in the quarter included Adage Capital, run by a group of managers that left Harvard University’s endowment in 2001, and Carlson Capital, run by former risk arbitrageur Clint Carlson.

The moves likely reflect growing confidence in Activision’s slate of popular videogames, analysts said, including the recently released “Call of Duty: Modern Warfare 2” and next year’s titles like sci-fi strategy game “StarCraft 2” and “Singularity,” a first-person shooter with a time-travel theme.

“People were probably thinking, buy in now for ‘Call of Duty’ and then when you look into next year, you’ve got ‘StarCraft 2’, you’ve got another ‘World of Warcraft’ expansion pack,” said MKM Partners analyst Eric Handler. “There’s a lot of levers there that next year should be a good year.”

Sales of Call of Duty, which hit stores Nov. 10, have lived up to enormous pre-launch hype. It is expected to eventually rank among the top-selling titles of all time.

“Call of Duty” had a record-breaking $550 million in sales in its first five days on the market, according to Activision, selling 4.7 million copies on the first day in the United States and Britain. [ID:nN10317306]

Handler has estimated that the game will account for more than one-third of Activision’s bottom line in the December quarter. “They were definitely the best-positioned company for the holidays.”

“The expectation for ‘Call of Duty’ is probably what they were trading into,” said Janco Partners analyst Mike Hickey, regarding fund manager’s buying shares. “You think these things are already priced in, but it never seems to be.”

Despite an economic downturn that has pinched sales across the industry, Activision, with a diverse mix of core gamer titles, music and online games, has performed well — even as competitors have cut jobs and closed studios.

Activision shares are up more than 30 percent this year, versus a less than 10 percent climb for archrival Electronic Arts Inc ERTS.O. Shares of video game companies tend to be volatile, fed by a fast-moving rumor mill.

Analysts say one of Activision’s strengths is the recurring revenue from its online games — notably “World of Warcraft,” which counts millions of paid subscribers around the world.

    Such massively multiplayer online role-playing games (MMORPG) have accounted for more than $900 million in revenue for Activision this year, or more than one-third of its sales.

    Analysts are expecting the company to post fiscal 2009 sales of $4.54 billion, and grow more than 10 percent to $5.01 billion in 2010. With a market capitalization of around $14.5 billion, Activision has $2.7 billion in cash and short-term investments.

    The median analyst price target on Activision is $15, or roughly 30 percent above its current share price.


    It has been difficult year for the $50 billion video game industry. Although the sector was once thought to be relatively immune to the economic downturn, the more casual gamers that helped fuel the industry’s growth over the past few years have scaled way back on spending.

    In the U.S., the world’s largest market, sales of game software are down 12 percent this year, according to industry tracker NPD.

    Activision was formed last year through a merger of Activision with Blizzard, the former games unit of France’s Vivendi SA (VIV.PA), which owns a majority stake in the combined company.

    Chief Executive Bobby Kotick has been publicly cautious about the all-important holiday season, noting in an interview earlier this month that there is a “huge risk” the consumer won’t materialize.

    But he was not lacking confidence in Activision’s game slate. “We have the best lineup of anybody in the video game industry.” (Reporting by Gabriel Madway; Editing Bernard Orr) ((; +1 415 677 2536))

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