Intrinsic value of Activision Blizzard - ATVI

Previous Close

$62.01

  Intrinsic Value

$106.78

stock screener

  Rating & Target

str. buy

+72%

  Value-price divergence*

+207%

Previous close

$62.01

 
Intrinsic value

$106.78

 
Up/down potential

+72%

 
Rating

str. buy

 
Value-price divergence*

+207%

*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 45.5

 

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
  18.60
  17.24
  16.02
  14.91
  13.92
  13.03
  12.23
  11.50
  10.85
  10.27
  9.74
  9.27
  8.84
  8.46
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
Revenue, $m
  6,608
  7,837
  9,188
  10,660
  12,250
  13,955
  15,774
  17,702
  19,739
  21,881
  24,128
  26,479
  28,933
  31,491
  34,154
  36,925
  39,805
  42,798
  45,909
  49,141
  52,501
  55,994
  59,627
  63,407
  67,342
  71,439
  75,709
  80,160
  84,802
  89,645
  94,702
Variable operating expenses, $m
 
  5,438
  6,207
  7,044
  7,949
  8,920
  9,955
  11,053
  12,212
  13,431
  14,710
  15,071
  16,468
  17,924
  19,440
  21,017
  22,656
  24,360
  26,130
  27,970
  29,883
  31,871
  33,939
  36,090
  38,330
  40,662
  43,092
  45,625
  48,267
  51,024
  53,902
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
  5,438
  6,207
  7,044
  7,949
  8,920
  9,955
  11,053
  12,212
  13,431
  14,710
  15,071
  16,468
  17,924
  19,440
  21,017
  22,656
  24,360
  26,130
  27,970
  29,883
  31,871
  33,939
  36,090
  38,330
  40,662
  43,092
  45,625
  48,267
  51,024
  53,902
Operating income, $m
  1,320
  2,400
  2,982
  3,616
  4,301
  5,035
  5,819
  6,650
  7,527
  8,450
  9,418
  11,408
  12,465
  13,567
  14,714
  15,908
  17,149
  18,438
  19,778
  21,171
  22,619
  24,124
  25,689
  27,317
  29,012
  30,778
  32,617
  34,534
  36,534
  38,621
  40,799
EBITDA, $m
  2,470
  3,531
  4,139
  4,802
  5,519
  6,287
  7,106
  7,975
  8,893
  9,858
  10,870
  11,929
  13,035
  14,187
  15,387
  16,635
  17,933
  19,281
  20,683
  22,139
  23,653
  25,227
  26,863
  28,566
  30,339
  32,185
  34,108
  36,114
  38,205
  40,387
  42,665
Interest expense (income), $m
  209
  230
  303
  383
  470
  565
  666
  774
  888
  1,009
  1,136
  1,270
  1,409
  1,555
  1,706
  1,864
  2,029
  2,200
  2,377
  2,562
  2,754
  2,953
  3,160
  3,376
  3,600
  3,834
  4,077
  4,330
  4,594
  4,869
  5,157
Earnings before tax, $m
  1,106
  2,170
  2,679
  3,232
  3,830
  4,471
  5,153
  5,876
  6,639
  7,441
  8,282
  10,138
  11,056
  12,012
  13,008
  14,043
  15,120
  16,239
  17,401
  18,609
  19,865
  21,171
  22,528
  23,941
  25,412
  26,944
  28,540
  30,205
  31,940
  33,752
  35,643
Tax expense, $m
  140
  586
  723
  873
  1,034
  1,207
  1,391
  1,586
  1,792
  2,009
  2,236
  2,737
  2,985
  3,243
  3,512
  3,792
  4,082
  4,384
  4,698
  5,024
  5,364
  5,716
  6,083
  6,464
  6,861
  7,275
  7,706
  8,155
  8,624
  9,113
  9,624
Net income, $m
  966
  1,584
  1,955
  2,360
  2,796
  3,263
  3,762
  4,289
  4,846
  5,432
  6,046
  7,401
  8,071
  8,769
  9,496
  10,252
  11,038
  11,854
  12,703
  13,585
  14,501
  15,454
  16,446
  17,477
  18,551
  19,669
  20,834
  22,049
  23,316
  24,639
  26,019

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
  16,854
  19,760
  22,924
  26,343
  30,011
  33,922
  38,069
  42,449
  47,057
  51,889
  56,944
  62,222
  67,723
  73,450
  79,408
  85,602
  92,039
  98,728
  105,680
  112,906
  120,418
  128,231
  136,360
  144,821
  153,633
  162,815
  172,386
  182,369
  192,785
  203,660
Adjusted assets (=assets-cash), $m
  14,207
  16,854
  19,760
  22,924
  26,343
  30,011
  33,922
  38,069
  42,449
  47,057
  51,889
  56,944
  62,222
  67,723
  73,450
  79,408
  85,602
  92,039
  98,728
  105,680
  112,906
  120,418
  128,231
  136,360
  144,821
  153,633
  162,815
  172,386
  182,369
  192,785
  203,660
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
  1,544
  1,810
  2,100
  2,413
  2,749
  3,107
  3,487
  3,889
  4,311
  4,753
  5,216
  5,700
  6,204
  6,728
  7,274
  7,842
  8,431
  9,044
  9,681
  10,343
  11,031
  11,747
  12,491
  13,266
  14,074
  14,915
  15,791
  16,706
  17,660
  18,656
Working capital, $m
  2,174
  -784
  -919
  -1,066
  -1,225
  -1,396
  -1,577
  -1,770
  -1,974
  -2,188
  -2,413
  -2,648
  -2,893
  -3,149
  -3,415
  -3,692
  -3,980
  -4,280
  -4,591
  -4,914
  -5,250
  -5,599
  -5,963
  -6,341
  -6,734
  -7,144
  -7,571
  -8,016
  -8,480
  -8,965
  -9,470
Total debt, $m
  4,887
  6,447
  8,153
  10,011
  12,018
  14,170
  16,466
  18,901
  21,472
  24,176
  27,013
  29,980
  33,078
  36,307
  39,669
  43,166
  46,802
  50,581
  54,508
  58,588
  62,830
  67,239
  71,825
  76,597
  81,564
  86,737
  92,126
  97,745
  103,605
  109,719
  116,102
Total liabilities, $m
  8,333
  9,893
  11,599
  13,457
  15,464
  17,616
  19,912
  22,347
  24,918
  27,622
  30,459
  33,426
  36,524
  39,753
  43,115
  46,612
  50,248
  54,027
  57,954
  62,034
  66,276
  70,685
  75,271
  80,043
  85,010
  90,183
  95,572
  101,191
  107,051
  113,165
  119,548
Total equity, $m
  9,119
  6,961
  8,161
  9,468
  10,880
  12,395
  14,010
  15,723
  17,532
  19,435
  21,430
  23,518
  25,698
  27,970
  30,335
  32,795
  35,353
  38,012
  40,775
  43,646
  46,630
  49,733
  52,959
  56,317
  59,811
  63,451
  67,243
  71,196
  75,318
  79,620
  84,111
Total liabilities and equity, $m
  17,452
  16,854
  19,760
  22,925
  26,344
  30,011
  33,922
  38,070
  42,450
  47,057
  51,889
  56,944
  62,222
  67,723
  73,450
  79,407
  85,601
  92,039
  98,729
  105,680
  112,906
  120,418
  128,230
  136,360
  144,821
  153,634
  162,815
  172,387
  182,369
  192,785
  203,659
Debt-to-equity ratio
  0.536
  0.930
  1.000
  1.060
  1.100
  1.140
  1.180
  1.200
  1.220
  1.240
  1.260
  1.270
  1.290
  1.300
  1.310
  1.320
  1.320
  1.330
  1.340
  1.340
  1.350
  1.350
  1.360
  1.360
  1.360
  1.370
  1.370
  1.370
  1.380
  1.380
  1.380
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
  1,584
  1,955
  2,360
  2,796
  3,263
  3,762
  4,289
  4,846
  5,432
  6,046
  7,401
  8,071
  8,769
  9,496
  10,252
  11,038
  11,854
  12,703
  13,585
  14,501
  15,454
  16,446
  17,477
  18,551
  19,669
  20,834
  22,049
  23,316
  24,639
  26,019
Depreciation, amort., depletion, $m
  1,150
  1,131
  1,158
  1,187
  1,218
  1,252
  1,288
  1,326
  1,366
  1,408
  1,452
  522
  570
  620
  673
  727
  784
  843
  904
  968
  1,034
  1,103
  1,175
  1,249
  1,327
  1,407
  1,491
  1,579
  1,671
  1,766
  1,866
Funds from operations, $m
  1,897
  2,715
  3,113
  3,547
  4,014
  4,515
  5,049
  5,615
  6,212
  6,840
  7,498
  7,922
  8,641
  9,389
  10,169
  10,979
  11,822
  12,697
  13,607
  14,553
  15,536
  16,558
  17,620
  18,726
  19,878
  21,077
  22,326
  23,628
  24,987
  26,405
  27,885
Change in working capital, $m
  -258
  -123
  -135
  -147
  -159
  -171
  -182
  -193
  -204
  -214
  -225
  -235
  -245
  -256
  -266
  -277
  -288
  -299
  -311
  -323
  -336
  -349
  -363
  -378
  -393
  -410
  -427
  -445
  -464
  -484
  -506
Cash from operations, $m
  2,155
  2,838
  3,248
  3,694
  4,173
  4,686
  5,231
  5,808
  6,416
  7,054
  7,723
  8,158
  8,886
  9,645
  10,435
  11,256
  12,110
  12,997
  13,918
  14,876
  15,872
  16,907
  17,984
  19,104
  20,271
  21,486
  22,753
  24,074
  25,451
  26,889
  28,390
Maintenance CAPEX, $m
  0
  -130
  -154
  -181
  -210
  -241
  -275
  -311
  -349
  -389
  -431
  -475
  -522
  -570
  -620
  -673
  -727
  -784
  -843
  -904
  -968
  -1,034
  -1,103
  -1,175
  -1,249
  -1,327
  -1,407
  -1,491
  -1,579
  -1,671
  -1,766
New CAPEX, $m
  -136
  -245
  -266
  -290
  -313
  -336
  -358
  -380
  -401
  -422
  -443
  -463
  -483
  -504
  -525
  -546
  -567
  -590
  -613
  -637
  -662
  -688
  -716
  -745
  -775
  -807
  -841
  -877
  -914
  -954
  -996
Cash from investing activities, $m
  -1,177
  -375
  -420
  -471
  -523
  -577
  -633
  -691
  -750
  -811
  -874
  -938
  -1,005
  -1,074
  -1,145
  -1,219
  -1,294
  -1,374
  -1,456
  -1,541
  -1,630
  -1,722
  -1,819
  -1,920
  -2,024
  -2,134
  -2,248
  -2,368
  -2,493
  -2,625
  -2,762
Free cash flow, $m
  978
  2,463
  2,828
  3,223
  3,650
  4,108
  4,598
  5,117
  5,666
  6,243
  6,849
  7,219
  7,881
  8,571
  9,290
  10,038
  10,815
  11,623
  12,462
  13,335
  14,242
  15,184
  16,165
  17,185
  18,247
  19,352
  20,504
  21,705
  22,958
  24,264
  25,628
Issuance/(repayment) of debt, $m
  711
  1,560
  1,706
  1,858
  2,007
  2,153
  2,296
  2,435
  2,571
  2,705
  2,837
  2,967
  3,098
  3,229
  3,362
  3,497
  3,636
  3,779
  3,927
  4,081
  4,241
  4,410
  4,586
  4,772
  4,967
  5,173
  5,390
  5,618
  5,860
  6,114
  6,383
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
  1,560
  1,706
  1,858
  2,007
  2,153
  2,296
  2,435
  2,571
  2,705
  2,837
  2,967
  3,098
  3,229
  3,362
  3,497
  3,636
  3,779
  3,927
  4,081
  4,241
  4,410
  4,586
  4,772
  4,967
  5,173
  5,390
  5,618
  5,860
  6,114
  6,383
Total cash flow (excl. dividends), $m
  1,617
  4,024
  4,533
  5,080
  5,657
  6,261
  6,893
  7,552
  8,237
  8,948
  9,685
  10,186
  10,979
  11,800
  12,652
  13,535
  14,451
  15,402
  16,389
  17,416
  18,483
  19,594
  20,751
  21,957
  23,214
  24,525
  25,894
  27,324
  28,817
  30,379
  32,011
Retained Cash Flow (-), $m
  -1,051
  -1,087
  -1,200
  -1,307
  -1,412
  -1,515
  -1,615
  -1,713
  -1,809
  -1,903
  -1,996
  -2,088
  -2,180
  -2,272
  -2,365
  -2,461
  -2,558
  -2,659
  -2,763
  -2,871
  -2,984
  -3,103
  -3,227
  -3,357
  -3,495
  -3,639
  -3,792
  -3,953
  -4,123
  -4,302
  -4,491
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
 
  6,182
  3,333
  3,773
  4,245
  4,747
  5,278
  5,839
  6,428
  7,045
  7,690
  8,099
  8,799
  9,528
  10,286
  11,074
  11,893
  12,743
  13,626
  14,544
  15,499
  16,492
  17,524
  18,599
  19,719
  20,886
  22,102
  23,371
  24,695
  26,077
  27,520
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
 
  5,927
  3,052
  3,284
  3,495
  3,679
  3,831
  3,945
  4,018
  4,047
  4,031
  3,846
  3,755
  3,623
  3,453
  3,251
  3,022
  2,773
  2,509
  2,239
  1,969
  1,706
  1,454
  1,219
  1,004
  812
  645
  502
  382
  285
  207
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 47.9
Price to Sales 7
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 21.5
Price to Free Cash Flow 22.9
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 18.6% 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 4.7% 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 19.7%.

Life of production assets of 10 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 -10%. 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 $45.5 billion.

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COMPANY NEWS

▶ 3 Stocks That Could Soar More Than Priceline   [Aug-16-17 06:00AM  Motley Fool]
▶ 3 Stocks That Look Just Like Activision Blizzard in 2013   [Aug-15-17 09:02AM  Motley Fool]
▶ Better Buy: Activision Blizzard vs Take-Two Interactive   [Aug-13-17 06:46PM  Motley Fool]
▶ eSports: Fad, Game-Changer, or Something in Between?   [Aug-11-17 05:29PM  Barrons.com]
▶ Nvidia Corporation (NVDA) Stock Overheats on Earnings Beat   [Aug-10-17 05:02PM  InvestorPlace]
▶ Truth, Yachts and Accounting   [09:23AM  Bloomberg]
▶ How Seasonal Are Activision Blizzards Financial Results?   [Aug-07-17 10:43PM  Motley Fool]
▶ Activision Stock Gets Blizzard Of Price-Target Increases   [12:33PM  Investor's Business Daily]
▶ Stocks Advance After Jobs Data; Networking Leader Breaks Out   [11:07AM  Investor's Business Daily]
▶ Market News For August 04, 2017   [10:16AM  Zacks]
▶ Activision Blizzard beats Street 2Q forecasts   [02:29AM  Associated Press]
▶ Activision Finally Details Its Vision for eSports   [Aug-03-17 06:12PM  Barrons.com]
▶ July's Popular Video Game Titles   [04:20PM  Barrons.com]
▶ Activision Blizzard beats on top line   [04:10PM  CNBC Videos]
▶ [$$] Activision Blizzard Earnings: What to Watch   [06:00AM  The Wall Street Journal]
▶ Get Your Grubhub On And Your Game Face Too: Investing Action Plan   [Aug-02-17 04:28PM  Investor's Business Daily]
Stock chart of ATVI Financial statements 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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