Intrinsic value of Activision Blizzard - ATVI

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$60.44

  Intrinsic Value

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  Value-price divergence*

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$60.44

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ATVI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 44.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  41.68
  49.00
  44.60
  40.64
  37.08
  33.87
  30.98
  28.38
  26.05
  23.94
  22.05
  20.34
  18.81
  17.43
  16.18
  15.07
  14.06
  13.15
  12.34
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
Revenue, $m
  6,608
  9,846
  14,237
  20,023
  27,447
  36,743
  48,126
  61,786
  77,879
  96,523
  117,803
  141,766
  168,429
  197,781
  229,791
  264,410
  301,585
  341,253
  383,356
  427,842
  474,664
  523,788
  575,195
  628,878
  684,846
  743,125
  803,755
  866,792
  932,309
  1,000,393
  1,071,146
Variable operating expenses, $m
 
  6,581
  9,080
  12,374
  16,599
  21,890
  28,369
  36,144
  45,304
  55,916
  68,028
  80,690
  95,866
  112,573
  130,792
  150,497
  171,656
  194,234
  218,199
  243,519
  270,169
  298,129
  327,389
  357,944
  389,800
  422,971
  457,480
  493,360
  530,651
  569,403
  609,674
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  5,288
  6,581
  9,080
  12,374
  16,599
  21,890
  28,369
  36,144
  45,304
  55,916
  68,028
  80,690
  95,866
  112,573
  130,792
  150,497
  171,656
  194,234
  218,199
  243,519
  270,169
  298,129
  327,389
  357,944
  389,800
  422,971
  457,480
  493,360
  530,651
  569,403
  609,674
Operating income, $m
  1,320
  3,265
  5,157
  7,650
  10,848
  14,853
  19,757
  25,642
  32,575
  40,607
  49,775
  61,076
  72,563
  85,208
  98,999
  113,914
  129,929
  147,019
  165,158
  184,323
  204,495
  225,659
  247,806
  270,934
  295,046
  320,154
  346,274
  373,432
  401,658
  430,990
  461,472
EBITDA, $m
  2,470
  4,452
  6,437
  9,053
  12,410
  16,613
  21,760
  27,936
  35,212
  43,643
  53,264
  64,099
  76,155
  89,426
  103,899
  119,552
  136,360
  154,296
  173,333
  193,447
  214,617
  236,829
  260,072
  284,345
  309,651
  336,001
  363,415
  391,917
  421,540
  452,324
  484,314
Interest expense (income), $m
  209
  171
  314
  508
  764
  1,092
  1,503
  2,006
  2,609
  3,320
  4,144
  5,084
  6,143
  7,321
  8,618
  10,032
  11,562
  13,204
  14,957
  16,817
  18,783
  20,851
  23,022
  25,293
  27,665
  30,138
  32,713
  35,392
  38,177
  41,071
  44,080
Earnings before tax, $m
  1,106
  3,094
  4,842
  7,141
  10,084
  13,761
  18,254
  23,636
  29,966
  37,287
  45,631
  55,992
  66,420
  77,887
  90,381
  103,881
  118,367
  133,815
  150,201
  167,506
  185,712
  204,808
  224,784
  245,641
  267,381
  290,016
  313,562
  338,041
  363,482
  389,919
  417,392
Tax expense, $m
  140
  835
  1,307
  1,928
  2,723
  3,715
  4,929
  6,382
  8,091
  10,068
  12,320
  15,118
  17,933
  21,030
  24,403
  28,048
  31,959
  36,130
  40,554
  45,227
  50,142
  55,298
  60,692
  66,323
  72,193
  78,304
  84,662
  91,271
  98,140
  105,278
  112,696
Net income, $m
  966
  2,259
  3,535
  5,213
  7,361
  10,045
  13,326
  17,254
  21,875
  27,220
  33,311
  40,874
  48,486
  56,858
  65,978
  75,833
  86,408
  97,685
  109,647
  122,279
  135,570
  149,510
  164,093
  179,318
  195,188
  211,712
  228,900
  246,770
  265,342
  284,641
  304,696

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,245
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  17,452
  21,174
  30,618
  43,061
  59,026
  79,017
  103,498
  132,874
  167,481
  207,577
  253,340
  304,874
  362,214
  425,336
  494,174
  568,625
  648,569
  733,877
  824,422
  920,090
  1,020,782
  1,126,427
  1,236,979
  1,352,426
  1,472,788
  1,598,118
  1,728,505
  1,864,069
  2,004,966
  2,151,384
  2,303,539
Adjusted assets (=assets-cash), $m
  14,207
  21,174
  30,618
  43,061
  59,026
  79,017
  103,498
  132,874
  167,481
  207,577
  253,340
  304,874
  362,214
  425,336
  494,174
  568,625
  648,569
  733,877
  824,422
  920,090
  1,020,782
  1,126,427
  1,236,979
  1,352,426
  1,472,788
  1,598,118
  1,728,505
  1,864,069
  2,004,966
  2,151,384
  2,303,539
Revenue / Adjusted assets
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
Average production assets, $m
  1,299
  1,743
  2,520
  3,544
  4,858
  6,503
  8,518
  10,936
  13,785
  17,085
  20,851
  25,093
  29,812
  35,007
  40,673
  46,801
  53,380
  60,402
  67,854
  75,728
  84,015
  92,711
  101,810
  111,311
  121,218
  131,533
  142,265
  153,422
  165,019
  177,070
  189,593
Working capital, $m
  2,174
  -1,595
  -2,306
  -3,244
  -4,446
  -5,952
  -7,796
  -10,009
  -12,616
  -15,637
  -19,084
  -22,966
  -27,286
  -32,041
  -37,226
  -42,835
  -48,857
  -55,283
  -62,104
  -69,310
  -76,896
  -84,854
  -93,182
  -101,878
  -110,945
  -120,386
  -130,208
  -140,420
  -151,034
  -162,064
  -173,526
Total debt, $m
  4,887
  8,983
  14,527
  21,831
  31,202
  42,937
  57,307
  74,551
  94,865
  118,401
  145,265
  175,515
  209,173
  246,226
  286,634
  330,337
  377,264
  427,340
  480,490
  536,647
  595,753
  657,766
  722,661
  790,428
  861,081
  934,649
  1,011,186
  1,090,763
  1,173,469
  1,259,416
  1,348,732
Total liabilities, $m
  8,333
  12,429
  17,973
  25,277
  34,648
  46,383
  60,753
  77,997
  98,311
  121,847
  148,711
  178,961
  212,619
  249,672
  290,080
  333,783
  380,710
  430,786
  483,936
  540,093
  599,199
  661,212
  726,107
  793,874
  864,527
  938,095
  1,014,632
  1,094,209
  1,176,915
  1,262,862
  1,352,178
Total equity, $m
  9,119
  8,745
  12,645
  17,784
  24,378
  32,634
  42,744
  54,877
  69,170
  85,729
  104,629
  125,913
  149,594
  175,664
  204,094
  234,842
  267,859
  303,091
  340,486
  379,997
  421,583
  465,214
  510,872
  558,552
  608,261
  660,023
  713,872
  769,861
  828,051
  888,521
  951,362
Total liabilities and equity, $m
  17,452
  21,174
  30,618
  43,061
  59,026
  79,017
  103,497
  132,874
  167,481
  207,576
  253,340
  304,874
  362,213
  425,336
  494,174
  568,625
  648,569
  733,877
  824,422
  920,090
  1,020,782
  1,126,426
  1,236,979
  1,352,426
  1,472,788
  1,598,118
  1,728,504
  1,864,070
  2,004,966
  2,151,383
  2,303,540
Debt-to-equity ratio
  0.536
  1.030
  1.150
  1.230
  1.280
  1.320
  1.340
  1.360
  1.370
  1.380
  1.390
  1.390
  1.400
  1.400
  1.400
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.420
  1.420
  1.420
  1.420
  1.420
  1.420
  1.420
  1.420
Adjusted equity ratio
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  966
  2,259
  3,535
  5,213
  7,361
  10,045
  13,326
  17,254
  21,875
  27,220
  33,311
  40,874
  48,486
  56,858
  65,978
  75,833
  86,408
  97,685
  109,647
  122,279
  135,570
  149,510
  164,093
  179,318
  195,188
  211,712
  228,900
  246,770
  265,342
  284,641
  304,696
Depreciation, amort., depletion, $m
  1,150
  1,187
  1,280
  1,404
  1,562
  1,760
  2,003
  2,294
  2,638
  3,035
  3,489
  3,023
  3,592
  4,218
  4,900
  5,639
  6,431
  7,277
  8,175
  9,124
  10,122
  11,170
  12,266
  13,411
  14,605
  15,847
  17,140
  18,485
  19,882
  21,334
  22,843
Funds from operations, $m
  1,897
  3,445
  4,815
  6,617
  8,923
  11,806
  15,329
  19,549
  24,512
  30,255
  36,800
  43,897
  52,078
  61,075
  70,878
  81,472
  92,839
  104,962
  117,822
  131,403
  145,692
  160,679
  176,359
  192,729
  209,793
  227,559
  246,040
  265,254
  285,223
  305,974
  327,539
Change in working capital, $m
  -258
  -525
  -711
  -937
  -1,203
  -1,506
  -1,844
  -2,213
  -2,607
  -3,020
  -3,447
  -3,882
  -4,319
  -4,755
  -5,186
  -5,608
  -6,022
  -6,426
  -6,821
  -7,207
  -7,585
  -7,958
  -8,328
  -8,697
  -9,067
  -9,441
  -9,822
  -10,212
  -10,614
  -11,030
  -11,462
Cash from operations, $m
  2,155
  4,658
  5,527
  7,554
  10,126
  13,312
  17,173
  21,762
  27,119
  33,275
  40,247
  47,779
  56,398
  65,830
  76,064
  87,080
  98,862
  111,388
  124,643
  138,610
  153,278
  168,638
  184,687
  201,425
  218,860
  237,000
  255,862
  275,466
  295,837
  317,004
  339,001
Maintenance CAPEX, $m
  0
  -141
  -210
  -304
  -427
  -585
  -784
  -1,026
  -1,318
  -1,661
  -2,058
  -2,512
  -3,023
  -3,592
  -4,218
  -4,900
  -5,639
  -6,431
  -7,277
  -8,175
  -9,124
  -10,122
  -11,170
  -12,266
  -13,411
  -14,605
  -15,847
  -17,140
  -18,485
  -19,882
  -21,334
New CAPEX, $m
  -136
  -573
  -777
  -1,024
  -1,314
  -1,645
  -2,015
  -2,418
  -2,848
  -3,300
  -3,767
  -4,242
  -4,719
  -5,195
  -5,666
  -6,128
  -6,580
  -7,021
  -7,452
  -7,874
  -8,287
  -8,695
  -9,099
  -9,502
  -9,906
  -10,315
  -10,731
  -11,158
  -11,597
  -12,051
  -12,523
Cash from investing activities, $m
  -1,177
  -714
  -987
  -1,328
  -1,741
  -2,230
  -2,799
  -3,444
  -4,166
  -4,961
  -5,825
  -6,754
  -7,742
  -8,787
  -9,884
  -11,028
  -12,219
  -13,452
  -14,729
  -16,049
  -17,411
  -18,817
  -20,269
  -21,768
  -23,317
  -24,920
  -26,578
  -28,298
  -30,082
  -31,933
  -33,857
Free cash flow, $m
  978
  3,944
  4,540
  6,226
  8,385
  11,081
  14,374
  18,318
  22,953
  28,314
  34,422
  41,025
  48,655
  57,043
  66,180
  76,052
  86,643
  97,936
  109,913
  122,561
  135,866
  149,820
  164,418
  179,657
  195,542
  212,080
  229,283
  247,168
  265,756
  285,071
  305,144
Issuance/(repayment) of debt, $m
  711
  4,096
  5,543
  7,304
  9,372
  11,735
  14,370
  17,244
  20,314
  23,536
  26,863
  30,250
  33,658
  37,053
  40,408
  43,703
  46,927
  50,076
  53,150
  56,157
  59,106
  62,013
  64,894
  67,767
  70,652
  73,569
  76,537
  79,576
  82,707
  85,947
  89,315
Issuance/(repurchase) of shares, $m
  106
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  695
  4,096
  5,543
  7,304
  9,372
  11,735
  14,370
  17,244
  20,314
  23,536
  26,863
  30,250
  33,658
  37,053
  40,408
  43,703
  46,927
  50,076
  53,150
  56,157
  59,106
  62,013
  64,894
  67,767
  70,652
  73,569
  76,537
  79,576
  82,707
  85,947
  89,315
Total cash flow (excl. dividends), $m
  1,617
  8,040
  10,083
  13,531
  17,757
  22,816
  28,745
  35,561
  43,268
  51,851
  61,285
  71,276
  82,314
  94,096
  106,588
  119,755
  133,570
  148,011
  163,063
  178,717
  194,973
  211,834
  229,312
  247,425
  266,195
  285,649
  305,820
  326,745
  348,463
  371,018
  394,459
Retained Cash Flow (-), $m
  -1,051
  -2,871
  -3,900
  -5,139
  -6,594
  -8,256
  -10,111
  -12,132
  -14,293
  -16,560
  -18,900
  -21,284
  -23,681
  -26,070
  -28,430
  -30,748
  -33,017
  -35,232
  -37,395
  -39,511
  -41,586
  -43,631
  -45,658
  -47,680
  -49,709
  -51,761
  -53,850
  -55,988
  -58,191
  -60,470
  -62,840
Prev. year cash balance distribution, $m
 
  3,245
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,415
  6,183
  8,392
  11,163
  14,559
  18,634
  23,429
  28,975
  35,291
  42,385
  49,992
  58,632
  68,027
  78,158
  89,007
  100,553
  112,779
  125,668
  139,207
  153,387
  168,202
  183,654
  199,745
  216,485
  233,888
  251,971
  270,757
  290,272
  310,548
  331,619
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  8,068
  5,660
  7,303
  9,192
  11,285
  13,523
  15,828
  18,110
  20,273
  22,221
  23,741
  25,020
  25,865
  26,239
  26,131
  25,553
  24,539
  23,143
  21,434
  19,491
  17,398
  15,238
  13,092
  11,026
  9,099
  7,351
  5,811
  4,491
  3,390
  2,497
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Activision Blizzard, Inc. develops and publishes online, personal computer (PC), video game console, handheld, mobile, and tablet games. The company operates through two segments, Activision Publishing, Inc. and Blizzard Entertainment, Inc. The company develops, publishes, and sells interactive software products and content through retail channels or digital downloads; and downloadable content to a range of gamers. It also publishes subscription-based massively multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution, licensing arrangements, and direct digital purchases in the United States, Canada, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, China, and internationally. Activision Blizzard, Inc. is headquartered in Santa Monica, California.

FINANCIAL RATIOS  of  Activision Blizzard (ATVI)

Valuation Ratios
P/E Ratio 46.6
Price to Sales 6.8
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 20.9
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 41.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 22.5%
Cap. Spend. - 3 Yr. Gr. Rate 12.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 53.6%
Total Debt to Equity 53.6%
Interest Coverage 6
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 7%
Return On Total Capital 7.4%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 11.7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 63.8%
Gross Margin - 3 Yr. Avg. 65.1%
EBITDA Margin 37.3%
EBITDA Margin - 3 Yr. Avg. 36.9%
Operating Margin 20%
Oper. Margin - 3 Yr. Avg. 25%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 21%
Net Profit Margin 14.6%
Net Profit Margin - 3 Yr. Avg. 17.6%
Effective Tax Rate 12.7%
Eff/ Tax Rate - 3 Yr. Avg. 16%
Payout Ratio 20.2%

ATVI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ATVI stock intrinsic value calculation we used $6608 million for the last fiscal year's total revenue generated by Activision Blizzard. The default revenue input number comes from 2016 income statement of Activision Blizzard. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ATVI stock valuation model: a) initial revenue growth rate of 49% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ATVI is calculated based on our internal credit rating of Activision Blizzard, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Activision Blizzard.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ATVI stock the variable cost ratio is equal to 71.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ATVI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Activision Blizzard.

Corporate tax rate of 27% is the nominal tax rate for Activision Blizzard. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ATVI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ATVI are equal to 17.7%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Activision Blizzard operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ATVI is equal to -16.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9119 million for Activision Blizzard - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 734.196 million for Activision Blizzard is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Activision Blizzard at the current share price and the inputted number of shares is $44.4 billion.


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Stock chart of ATVI Financial statements of ATVI Annual reports of ATVI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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