4. Activision Blizzard, Inc. (NASDAQ:ATVI)
CQS Cayman’s Stake Value: $21,140,000
Percentage of CQS Cayman’s 13F Portfolio: 1.46%
Number of Hedge Fund Holders: 80
Activision Blizzard, Inc. (NASDAQ:ATVI) is a California-based interactive entertainment and video game company. In its first quarter regulatory filings, Michael Hintze’s hedge fund reported owning 263,888 shares of Activision Blizzard, Inc. (NASDAQ:ATVI), worth $21.14 million, representing 1.46% of its total portfolio value. Activision Blizzard, Inc. (NASDAQ:ATVI) was a new addition to Hintze’s hedge fund in Q1 2022.
On April 25, Activision Blizzard, Inc. (NASDAQ:ATVI) announced “disappointing” fiscal Q1 financial results, Benchmark analyst Mike Hickey told investors in a research note. The analyst was not surprised by Call of Duty’s weakness, as the last product release was underwhelming, but said the decline in Blizzard’s growth “was somewhat shocking”. However, the Microsoft acquisition has built a “valuation floor” for Activision Blizzard, Inc. (NASDAQ:ATVI) investors, added the analyst. He kept a ‘Buy’ rating on the stock with a $100 price target.
According to Insider Monkey’s data, 80 hedge funds were long Activision Blizzard, Inc. (NASDAQ:ATVI) at the end of Q1 2022, up from 70 funds in the previous quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder in the company, with 64.3 million shares worth $5.15 billion. Buffett’s hedge fund boosted its stake in Activision Blizzard, Inc. (NASDAQ:ATVI) by 339% in Q1.
Here is what the FPA U.S. Core Equity Fund had 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 a 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.”
