4. Activision Blizzard, Inc. (NASDAQ:ATVI)
Number of Hedge Fund Holders: 80
Activision Blizzard, Inc. (NASDAQ:ATVI) is an American interactive entertainment company. On July 25, MoffettNathanson analyst Clay Griffin upgraded Activision Blizzard, Inc. (NASDAQ:ATVI) to Outperform from Market Perform with an unchanged price target of $95. The merger arbitrage spread has been wide ever since Microsoft agreed to acquire Activision Blizzard, Inc. (NASDAQ:ATVI) for $95 per share, observed the analyst. Given an approximately 20% discount to the deal price, purchasing Activision Blizzard, Inc. (NASDAQ:ATVI) stock at this point is “an uncorrelated return opportunity that we find increasingly compelling,” he added.
Philippe Laffont initially invested in Activision Blizzard, Inc. (NASDAQ:ATVI) back in Q4 2014 and consistently held the position until the end of 2019. In Q1 2020, the billionaire’s fund disposed of its Activision Blizzard, Inc. (NASDAQ:ATVI) stake and purchased back shares of the company in Q4 2021, only to dump the $60 million position again in Q1 2022.
According to Insider Monkey’s data, 80 hedge funds were bullish on Activision Blizzard, Inc. (NASDAQ:ATVI) at the end of Q1 2022, up from 70 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway featured as the biggest stakeholder of the company, with 64.3 million shares worth $5.15 billion.
Here is what FPA U.S. Core Equity Fund has to say about Activision Blizzard, Inc. (NASDAQ:ATVI) in its Q1 2022 investor letter:
“One of the Fund’s biggest winners in the first quarter was Activision Blizzard. On January 18, 2022 Microsoft (NASDAQ:MSFT) agreed to purchase ATVI for $95.00 per share in an all-cash transaction. The Fund has been invested in ATVI since the second quarter of 2018.
The investment thesis was threefold. First, the greater than $200 billion gaming industry is the largest and fastest growing form of entertainment in the world. More than three billion people play games currently and the population of global gamers is expected to grow faster than global population growth this decade.14 Second, ATVI has some of the best intellectual property in the gaming industry including Warcraft, Diablo, Overwatch, Call of Duty and Candy Crush in addition to global eSports activities through Major League Gaming. Third, ATVI has had a pristine balance sheet with net cash over the past four years, generated robust free cash flow and traded at an undemanding valuation.
ATVI closed the quarter at $80.11—a nearly 16% discount to the acquisition price. Assuming it takes about a year for the deal to close, a 18.6% return seems to be good upside relative to the risk of a deal not closing due to anti -trust concerns. If the transaction closes it would make Microsoft the third-largest company in gaming by revenue behind Tencent and Sony. There is plenty of competition from these larger players as well as smaller competitors such as EA, Take-Two Interactive, Roblox and Epic Games’ Fortnite. The Fund remains invested in ATVI given the significant discount, but should the discount narrow in the coming quarters the Fund could reduce or eliminate the position.”
