Merion Road Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. Merion Road Capital’s long-only large-cap portfolio returned 20% for the year. While this is a strong result on an absolute basis, it lagged the S&P. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Merion Road Capital Management, in its Q4 2021 investor letter, mentioned Activision Blizzard, Inc. (NASDAQ: ATVI) and discussed its stance on the firm. Activision Blizzard, Inc. is a Santa Monica, California-based video game company with a $63.4 billion market capitalization. ATVI delivered a 22.50% return since the beginning of the year, while its 12-month returns are down by -21.49%. The stock closed at $81.50 per share on February 14, 2022.
Here is what Merion Road Capital Management has to say about Activision Blizzard, Inc. in its Q4 2021 investor letter:
“The largest detractor for the year was our position in Activision (“ATVI”). ATVI took multiple legs down during the year as they became the defendants of a sexual harassment lawsuit and faced a wave of incriminating pressfrom journalists. To make matters worse, it became apparent that ATVI wasstruggling in their response to the crisis at hand. While I find such actions truly deplorable, my job as an investor is to assess the situation and determine whether or not the company’s valuation accurately reflects these associated risks. Unfortunately, I miscalculated the impact that these factors would have on the company. My initial rationale was that sexual harassment lawsuits are not uncommon and would be settled with compensation – given ATVI’s size and balance sheet, this would not be a crippling event. Furthermore, with a deep catalog of proven games, ATVI’s earnings stream is predictable and less reliant on new hits.
What I did not properly consider was that the company’s true asset is not its catalog but rather its employee base. Video games are a form of art and need creative developers to build stories that draw users in and keep them engaged. Whether it is brand new content or an iteration of a previously successful title, the quality of the work, and therefore bench of developers / creators, matters. It is clear that the culture at ATVI was unhealthy. Changing that will not be easy. It will make it difficult for the company to attract new talent and retain key employees. From a financial perspective this could lead to delays in game production and perhaps less successful products. I exited our position given these risks.”
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Our calculations show that Activision Blizzard, Inc. (NASDAQ: ATVI) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. ATVI was in 80 hedge fund portfolios at the end of the third quarter of 2021, compared to 78 funds in the previous quarter. Activision Blizzard, Inc. (NASDAQ: ATVI) delivered a 15.72% return in the past 3 months.
In January 2022, we also shared another hedge fund’s views on ATVI in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
