Activision Blizzard recently joined the S&P500 Stock Index, vastly increasing the company's visibility among investors worldwide.
I'm going to try to explain why I believe this small bit of news to be a very important development in the world of Gaming and how it might affect future Blizzard titles. I currently work for a large investment bank as an equity derivatives analyst. I'm also a Gamer of 20+ years. A little background:
Activision Blizzard Inc. Leaps into the S&P 500 [Motley Fool]
Joining good company
Activision joins rival video game publisher Electronic Arts as the only other member of the S&P 500's "home entertainment software" sub-category. That sector happens to be a crazy-good place to be doing business in at the moment. Over the last three years, EA's operating cash flow has improved from a $700 million annual pace to $1.2 billion. And its earnings have spiked through the same period -- up from $1.69 per share to an expected $2.85 per share this year. As a result, EA is currently the fifth best-performing stock in the entire S&P 500 index.
Activision joins rival video game publisher Electronic Arts as the only other member of the S&P 500's "home entertainment software" sub-category. That sector happens to be a crazy-good place to be doing business in at the moment. Over the last three years, EA's operating cash flow has improved from a $700 million annual pace to $1.2 billion. And its earnings have spiked through the same period -- up from $1.69 per share to an expected $2.85 per share this year. As a result, EA is currently the fifth best-performing stock in the entire S&P 500 index.
Activision Blizzard (ATVI) Stock Higher on Addition to S&P 500[TheStreet]
The revenue growth came in higher than the industry average of 11.9%. Since the same quarter one year prior, revenues slightly increased by 7.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
If you don't already know, the S&P500 is a basket of 500 of the largest company's stocks. It is meant as a way to track the market capitalization, or price, of a large number of companies, and thus give an idea about the health of the economy.
So who cares? Activision Blizzard was already a public company. Well, now that they're a part of the almighty S&P500, suddenly there will be an army of Wall St. analysts who are scrutinizing their every move. Index funds will be forced to purchase huge numbers of ATVI shares to keep their baskets up to date. Every press release will be analyzed. Every delay in the release of a game will move the stock price down a few ticks. Hedge Fund managers will go long, go short, buy and sell options. Quarterly shareholder calls will be getting more crowded. Questions will abound about when investors can see a return on investment. Just take a look at many of the articles - analysts touting their impressive gross margins. Speculations about their impressive revenue growth.
EA was the first gaming company to join the S&P500, and ATVI is the second. I'm not saying ATVI is EA, but here is reminder of the horrors EA has wreaked on the gaming industry:
+ Show Spoiler +
I digress. All this leads to greater and greater pressure on the creative minds at Blizzard who are actually putting their artistic talents to work creating games. They will have to adhere to more strict deadlines. I am already seeing notes and articles about how ATVI can increase profitability by offering more downloadable content, which is seen as the future of the industry.
I think this will be a great thing for investors, and a terrible thing for gamers. Blizzard will no longer be allowed to take risks, they'll have to stick to the tried and true formula lest they risk a flop which will hurt the share price. I may be being overly dramatic here. However, what this all amounts to in my mind (and believe me I see this issue from two perspectives) is that the artists and creators at Blizzard will no longer be able to create the kinds of amazing games that they used to. They are now beholden to shareholders more than ever before, and I don't see it as a good thing.