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Activision Blizzard (
ATVI) has one of the most attractive business models in the video game industry, and that, in turn, has helped build a huge net cash position of more than $4.3 billion - more than a quarter of the company's market capitalization. That means that ex-cash, ATVI's price-to-earnings ratio sits at a measly 10 times earnings right now.
Translation: Shares of ATVI are cheap.
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Activision Blizzard owns some of the hottest video game franchises in the world, including Call of Duty, World of Warcraft and Diablo. What's unique about ATVI's positioning is the exposure to subscription-based multiplayer games such as World of Warcraft. With WoW, for instance, some 8 million subscribers pay a monthly fee to play the game online with other players in real time. That subscription component provides ATVI with recurring, high margin revenues. And they're sticky too. Because gamers have a massive sunk cost in building characters and attaining status, they're a lot less likely to switch to a competing franchise and restart the process.
By integrating a subscription component into its more conventional franchises, the firm should be able to achieve a repeat performance in terms of revenues. It'll have to act quickly. With slow attrition from the firm's existing subscriber base, it needs to keep innovating and adding onto its gameplay experiences to keep its grasp on players.