GOOG (Google) Technical Analysis

Today I’ll show a couple charts for Google (GOOG), which I am accumulating in my retirement account. My strategy with Google is to get as many shares as possible as cheaply as possible. I have some targets where I’d be stupid not to sell, but in general GOOG prices stay fairly valued to my estimates. I buy on the dips.

Above is a 6 month chart. There is support at around $560 and resistance above around $670 and the all time highs. I drew an optimistic support line there on the short term trend. You’ll see below that this trend has some data points further back too.

GOOG is hitting an inflection point now as the 200-day moving average approaches the all time highs. In the short term, I wouldn’t be surprised to see it trace back to the 50-day MA or the 200-day MA. If it does, I plan to load up at around that $590 point and if it goes lower.

Here is a 3 year chart showing the longer term trends.

(Note: the moving averages are different because this chart is showing weekly candles vs. daily.)

Notice that my optimistic trendline on the 6 month chart shows up here going back to last May. The inflection point with that trend and the resistance at $650-670 is much more start kere.

If the market stays strong and GOOG’s next earnings are decent, I think the stock could pop here and ride out for a bit… setting new support at the $650 level. I think it just as likely that the stock goes down into the $500 and high $400 range again, which would be great as I could accumulate more. Note that GOOG has had pull backs the last two summers.

Fundamentally, there doesn’t appear to be any reason that Google won’t continue to hit their numbers and post good earnings. Sure Apple, Facebook, and Microsoft are competing in search. But at the moment, it seems that Google is doing better competing on their turfs than they are competing on Google’s.

ATVI (Activision Blizzard) Technical Analysis

I’m going to post some charts of “my book” over the next few days. I may post things from my watch list, and I will try to post updates on these as needed.

First up is Activision Blizzard (ATVI), which I bought last year basically so I could own a piece of Blizzard.

Blizzard is the Pixar of videogames. Everything is a hit. I also think they are pretty smart about how to expand the business of videogames… by encouraging Star Craft as an esport and other things.

So, here is a six month chart showing how resistance at $12.50 looks to be holding up as a new support level.

ATVI has been in a channel between $10-$13 for a while. On the 3 year chart here we see that $12.50 level again, and I try to draw a range around the more recent upward move.

If you go further back, there is some resistance at $13, after that it’s pretty smooth sailing up to the all time highs and hopefully higher. ATVI has earnings coming out later this month. Pre-sales for the Diablo III release coming in May, including customers who were encouraged to switch their monthly World of Warcraft memberships to annual memberships, could bump the quarterly numbers enough to push the stock over that $13 level.

With new consoles coming out at the end of the year, we are entering the boom part of the videogame cycle. This stock should do well.

Trefis Puts Facebook at $74 Billion

Trefis provides some great reports that show up in my Etrade account. Their analysis is very thorough. I especially like how they break down different business units and how much of a stock’s share price is tied to each unit.

Trefis values Facebook (based on the limited pre-IPO information they have) at $74 Billion, based largely on their advertising business and growth via a growing user base (from 800 million to 2.6 billion) and increased ad revenues from video and music services Facebook is working on.

Here is the report.

They go into how their estimates could be tweaked to get to a $100B valuation. It’s interesting to see this analysis getting to a $100B valuation without any new revenue streams outside of advertising. They basically give the very very optimistic view in terms to user and ad revenue growth.

Facebook IPO Best and Worst Case Scenarios

Facebook released their numbers in preparation for an IPO, showing 2011 revenue of $3.7 Billion and profits of $1 Billion. Speculation is the IPO will be valued as high as $100 Billion.

This would be a P/E of 100. That’s high, but then P/E’s are not as significant an indicator for young companies with a lot of growth potential. So can Facebook grow enough to justify a $100 Billion price tag? I’m not so sure.

The easy justification goes like this:

  • Facebook has been focused on user growth and they were still growing 100% per year. When they switch focus to revenues, they’ll make much more.
  • If they “just” double revenue and profits in 2012 and again in 2013, that 100 PE will shrink to a 25 PE.

So that would be a $100 B company making $4B per year on $15B revenue or so. (For comparison, Google has a $190B market cap and made about $10B profits on $38B revenue in 2011.) One could see the stock of a company growing like that getting a 50 P/E and basically doubling your IPO investment in 2 years. It’s plausable.

All those numbers were out my ass. It’s easy to multiply numbers on a calculator. But how will Facebook REALLY make an additional $11B in revenue and $3B in profit?

The Best Case Scenario

Facebook makes money on advertising on their site. They also make money from virtual currency sales, i.e. in-game payments in Zynga games. Roughly:

  • $3B from onsite ads.
  • $1B from virtual currency.

Both those numbers will have to double twice over two years to get to our $15B revenue target. (Same math as above.)

That’s hard to justify though. Google, who dominates the online ad market made about 1/3 of their profit from search ads or about $12B last year. We’re saying that Facebook can get to that same level of revenue in 2 years? Literally over half of the money spent on AdWords campaigns would have to be shifted to Facebook ads. I’m not that close to the ad space, but I’d love to see someone justify that.

But what the hell, this is the best case scenario after all. Ad sales grow to Google proportions and hit $12B in revenue.

Can virtual currency sales grow 200% over two years? Who’s the king in app sales? Apple. In the last quarter of 2011, when Apple made pretty much more money than any company has ever made, they made a cool $2B on “Other music related products and services”, which includes “revenue from sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Applebranded and third-party iPod accessories.” (Apple’s SEC Filing)

Let’s say Apple keeps that up for the next 3 quarters. They will make $8B from app sales, music sales, books, and in-game sales. Facebook doesn’t currently sell apps, music, or books, but maybe they will start. Are they going to become half as big a player here as Apple is now? Let’s give them the benefit of the doubt. Facebook is one step away from the devices, so $8B would be a bit much. Let’s say they grow to $4B.

Facebook might add additional revenue sources. They could start making money in these ways (let me know if you have others):

  1. Sell ads on third party sites. (Google made $1B doing this.)
  2. Charge companies for their Facebook pages. (10M businesses x $10/month = $1.2B/year) (more ass numbers)
  3. Partner with Bing to launch a search engine of their own (Yahoo! made $500M doing this. Maybe Facebook can get to $1B).
  4. Get into LinkedIn’s business and sell job postings (LinkedIn had $250M revenue in 2010. Let’s give FB $500M).
  5. Get into Craig’s List’s business and sell property listings (Another $500M?).
  6. Get into Zynga’s business and develop games in-house ($2B).

We end up with $12B in ad sales, $4B in virtual sales, plus another $6.2B in new stuff for a total of $22.2B in revenue. At a 30% margin that’s $6.6B in profits. Our PE is now 15; market average. And with the growth they have, you could justify a big 50-60PE for a lot of investors. The company rises to a $300B to $400B valuation.

Worst Case Scenario

What’s the worst case scenario? Put simply, it’s that Facebook’s growth will slow down, and this IPO is just a big liquidation event for existing share holders to cash out.

Some bad things could happen:

  1. Zynga games and the like take off outside of Facebook. FB loses the games or is forced to lower their cut.
  2. FB increases the number or the invasiveness of ads on the site. People flee to Google+.
  3. FB starts charging for business postings. Businesses flee to Google+.
  4. FB Search, FB Jobs, and FB Properties all fail, costing billions in lost R&D.
  5. MySpace comes back. Diaspora takes off. Twitter gains ground.

In the past few years, those 100% revenue gains have come along with similar-sized user gains. But user growth has slowed. So they’ll really need to squeeze more money out of advertisers.

All this might lead to minimal gains in current revenue streams (let’s say 25% year over year) and then let’s assume they just blow their $5B raised on 1-5 above. That would equate to revenues of $6.25B – 2.5B (5/2 years) or just 3.75B revenue in 2013. That’s where they are now.

With revenues and profits stagnant after 2 years, IPO investors are tired of waiting it out and flee the stock. Facebook apologizes for the missteps and vows to focus on their core advertising which is still growing 25% per year. Still the stock tanks 50% or more if sentiment turns.

Summary

Well assuming the bullshit above stands, we got a 300 to 400% upside and a 50% or so downside. This actually might be a good investment. But I imagine I wasn’t tough enough in my worst case scenario. And I was surely too optimistic in my best case scenario.

Still, I wanted to think these things through. I wanted to focus on how Facebook will really make more money going forward, because that’s what they’ll have to do for the stock price to rise. And the money can’t come out of thin air. It has to come from some other company’s market share or from consumers and businesses purchasing something they haven’t before.

Personally, my initial reaction is that $100B is too high a market cap for this company. After doing this post, I’m actually more optimistic for Facebook… especially if the IPO price sees a little dip at some point without hindering the excitement around the company. Still, I think this is definitely too uncertain for me to be an investor or to recommend the IPO.

I’d really love to hear more feedback about this. Am I delusional? I’m especially interested in anything I’m not considering with regards to how Facebook will make money going forward. Is it more than just pushing their ads harder? Perhaps as a public company, Facebook themselves will comment on this sometime.

Why I’m a Buyer of Netflix Stock

Sometimes you look at a stock like Netflix when it was trading at $300+ and think “Here is a great company in a market with super growth, but how can I justify the price?”

Well, it turns out you don’t have to justify the price because the market is beating the shit out of the stock. It’s trading after hours right now at around $86, and who knows where the market will take it.

Hip Egg had the next level of support at around $60, so I would look for the price to gravitate towards that level.

I own a small number of shares bought in the $113-$130 range. I thought that Netflix might blow away earnings due to the price increase (and they did), but the sandbagged forecast they gave is scaring more investors away. I plan on double or tripling my position as the price falls.

With the stock under so much duress why am I a buyer?

Because Netflix is still the best video streaming company by a long shot and the growth prospects there are extraordinary. This company is going to make a ton of money. They may not get the price bonus they got as a WallStreet darling, but pretty soon the earnings will force people back into the stock.

I think the company is on a good path right now. I had my doubts, especially when they announced that Qwikster business. I thought they were panicking and losing site of the strengths of their platform. Hastings, who was probably too aware of customer complaints about seeing titles that were only available on DVD, seemed surprised that users would want to see both streaming and DVD titles in one queue.

It was a welcome site to see them reverse that decision. And Hastings’ explanation that the DVD business “holds value for our 10 million subscribers” is great and shows that they are really thinking about what is best for their customers again.

I think most people by now agree that the price change (really a price alignment) from earlier in the summer was the right move. It makes sense for people who want DVDs to pay for that package separate, and for people who want streaming to pay for that package separate. And I don’t blame the Netflix executive team for not anticipating the backlash that occurred. To me the story was always like this:

You know those streaming movies that you’ve been getting for free with your DVD package for the past year? Well, now you’re streaming more movies than you are getting on DVD. We’ve come up with a price for the streaming service. It’s only $7.99. That’s less than you were paying for your DVD plan before, and hell that’s only $7.99 now too. That’s less than any other competitor, and we still have the best service.

Risks to the Business

For me, the biggest risk to Netflix’s future profits was in their ability to obtain more material for their streaming service without being shook down. The studios owning video content have a lot of motivation to play hard ball with Netflix on their prices. Conspiracy theorist will see them working together cartel-style to see a company they are more friendly with oust Netflix as the market leader. Maybe Hulu because they own a piece of it… or Amazon or Walmart because those companies sell so many DVDs and BlueRay Discs for them already. But even without illegal price-fixing, it’s easy to see the studios going after Netflix because the money is there, and other sources of money may be drying up.

I’m still worried about the content problems, but I think Netflix has a handle on it. They are throwing money at it, which is good. This will increase their library and their costs, but their other costs are going down. Streaming is cheaper than mail. And user acquisition costs are down as well.

I think there is a new risk to the stock and the business though. And that is the risk that the board will give into public pressure to relieve Reed Hastings. I don’t want to start rumors or drum anything up. But there are a lot of jaded investor folks who are asking for Hastings’ head. I don’t know if the board is behind their man or not. I’d like to research that some more to see where the board stands.

A drastic seat change like that would obviously be yet another blow to the stock price, and I’m not sure the replacement would have the vision Hastings has for the future of streaming at Netflix.

Risks to the Stock Price

The price will drop tomorrow. It probably will go down further. Management is warning that Q4 revenue and earnings may come in lower. Even more, they are saying that earnings in Q1 will be negative as they spend more money on expansion and licensing deals.

Support is in the $60 range, but who knows if that will hold. Amateur investors will bail more as the stock price falls. Institutional investors will bail more as earnings go into the red.

The Bright Side

Netflix will continue to grow subscribers world-wide and will continue to make money. Netflix typically has strong fourth quarters. (Anecdotally, I know a lot of people gift Netflix for the holidays. And a lot of people pick it up to take advantage of new TVs and gadgets.)

If the price really drops to $86 or so. With earnings around $4 a share, that’s a PE of about 22 for a company that is growing at 50% year of year.

Netflix currently has about 24M subscriptions. There is plenty of room to grow. There are at least 96 million cable/etc subscriptions in the US. Imagine 96M Netflix subscribers.

Throw in growth overseas.

Tomorrow, the single largest source of internet traffic in the United States will be run by a company with just a $4B market cap. Netflix owns a huge portion of our mindshare that will only grow larger. As long as they stay smart and continue to perform to their own standards, their business will flourish. Investors will have to return.

Yes You Should Refinance. But How?

With mortgage rates dropping like a brick, it’s becoming a no-brainer for us to refinance our home loan. Even though we just got a 30-year loan 2 years ago at 5.875%, we can get 30-year loans now for around 4.5% or lower. You might be in a similar situation.

Rule of Thumb

The rule of thumb I hear thrown around a lot is that if you can drop 1% off your mortgage rate, you should refinance. To get a more precise idea if refinancing is good for you, you should really take into account how long you expect to stay in your home and see if you break even on your refinance costs before then. A good tool for this is the Mortgage Refinance Breakeven calculator found here (thanks MyMoneyBlog).

Breakeven Point on Our Mortgage

I plugged our numbers into the tool:

  • $180k original loan
  • $235k appraisal
  • 5.875%
  • 28 of 30 years
  • income tax rate of 25%
  • $175k loan balance
  • 4.5% new rate
  • 30 years
  • 0 origination and points
  • $3000 in closing costs

The tool tells me that I’d break even on this refinance in 18-22 months. We’d save $177* per month on our payments, and so as long as we’ll be here for 2 years we’ll make up the refinance cost and then some. Since we are planning on staying here for at least 2 years, we should refinance.

* The spreadsheet says $147… must have used slightly different numbers.

Yes But

The only real questions now are (1) should we wait for rates to go lower and (2) what kind of loan should we get.

I’ll avoid (1) for now. I think there is a real chance rates go lower, but I don’t want to be too greedy. I want to take advantage of a good thing while we have the chance. So I’ll assume we can refinance at the current rates.

RE (2): if your home loan situation is anything like mine, you have a lot of options to consider when refinancing. In our case, we have a second mortgage for $30k which is interest only at a rate of prime plus 1% (I think about 4.25% right now). We also have more cash flow than we did 2 years ago and can afford a bigger payment if it means we’ll be paying off the mortgage sooner and saving money on interest rates.

So we have questions like:

  • Should we roll the second mortgage (M2) into the new mortgage to lock in this low rate?
  • Should we get a 20 year loan (at 4.25%) instead of a 30 year loan (at 4.5%)?
  • Should we keep the M2 loan as is and make principle payments toward it?
  • Should we refinance the M2 separately?

A Spreadsheet!

Calculating all of this can make your head explode. I created a spreadsheet that calculates just some of the factors, while leaving others out, and focuses on the most promising options for us. You can see it here: Coleman Family Refinance Options.

The main scenarios I focused on are:

  1. The status quo, i.e. keeping our current loans.
  2. Refinancing just our first mortgage (M1)
  3. Rolling our second mortgage (M2) into M1 (we’d pay PMI for 3.5 years since we’d have less than 80% equity)
  4. Refinance M1 for 20 years
  5. Roll M2 into M1 for 20 years (PMI for 3.5 years again)
  6. Refinance M1 and pay difference into M2
  7. Refinance M1 for 20 years and pay extra $2k/year into M2

The columns of the spreadsheet show:

  1. The scenario #
  2. A description
  3. Rate on M1
  4. M1 monthly payments
  5. M2 monthly payments
  6. PMI payment if applicable
  7. Total monthly payments
  8. Term of M1
  9. Annual Payment
  10. Total M1+M2 debt in 2 years
  11. Total M1+M2 debt in 4 years
  12. Total M1+M2 debt in 10 years
  13. Lifetime cost of loan (rough rough estimate)
  14. Notes

Note on the columns. Some of them are updated when you tweak the numbers, but the 2, 4, 10, lifetime columns were entered by me after running numbers in that break even calculator linked above.

The second table has the same columns as the first, but shows the difference in payments/debt/etc compared to the status quo. So it can tell us how much we’d save (or spend extra) on payments and how much more (or less) debt we’d have after 2, 4, and 10 years.

mortgage-options

There is also a table at the bottom of the spreadsheet showing expected returns if we made monthly investments at a 6% return. This is to help us calculate what we could be making with that extra $147/etc per month if we didn’t use it to pay off M2 or get a 20-year loan.

Some Pre-existing Notions I Had

Before I pull some numbers out and explain how we’re leaning, let me relay a few biases I had going into this.

1. I’m okay with our interest-only second mortgage. At 4.25%, that is a cheap price to borrow money right now. We’re making more than that on our money that we invest in our business and in our retirement accounts. Paying toward the principle on that loan would be like buying a 4.25% bond. Decent return, but not as good as we’re getting elsewhere. So I’m happy to loan at that amount indefinitely basically. However, I do think that rates will go up in the mid-long term. I don’t want to get caught with higher rates that are a strain to pay. Our idea has always been that we would use some kind of windfall (e.g. if we sell one of our website properties) to pay off that loan in one foul swoop. However, we should at least consider somehow locking in a rate for this.

2. I’m against paying PMI in theory. (That’s why we got a second mortgage before instead of one loan with PMI.) If you have the credit, other options are probably better for you. Some good info on PMI here.

Findings From the Spreadsheet

The key columns to focus on to compare options is the Annual Payments and the difference in debt in years 2, 4, and 10. The second table shows the difference in these numbers compared to the status quo. And so I can see that if I go with option #2 (refinance just the 1st mortgage), we’d save $1,764 per year and have $5,966 less debt/more equity after 10 years. If we held the loan the whole 30 years, we’d pay $21,985 less.

Now if I rolled M2 into M1 and payed PMI, we would still save $435 per year ($1,500 per year after 3.5 years) and have $12,538 more equity after 10 years since we’d in effect be paying principle on that M2 now. However, we would spend an extra $3725 or so on PMI those first 3 years, and sometimes it can be difficult to get PMI removed once you do have enough equity in the house. Overall though, it seems like using our savings from the refinancing to pay down M2 is a good use of our capital. It lowers our debt risk in the future.

You should be reminded here that not only do we have $5-12k more equity after 10 years, we could have invested the saved payments to have an extra $18-24k in our retirement accounts. Refinancing really is a good deal.

One option I really wanted to calculate was keeping our interest-only M2 and making principle payments to it instead of rolling it into the new mortgage or refinancing on its own. This would avoid PMI or additional refinance options. If we are disciplined, we can pay off M2 just as fast… but we’d also have some flexibility if we needed some monthly cash flow. Scenario #6 lays this out. We would end up paying as much per month/year as we do now. So no savings there, but we’re really okay with our current payments. We would however have an $31,336 less debt across both mortgages.

Scenarios #4, #5, and #7 basically come down to paying a little bit (or quite a bit) extra per month in exchange for less debt in the future and less interest payments over all. One nice thing about these plans is that 10 years out, we could have nearly $50k in equity built up in the loan. Combined with an appreciation in home value (I know, but we’re talking 10 years from now… let’s hope) we could have a nice size chunk to use as a down payment on a larger home.

Summary

I’ll let you know what we decide when we go through with things. I think I’m leaning toward refinancing just the first loan and making principle payments on our second mortgage/line of credit. Some things we need to think about:

  • Can we really get 6% on investments on money saved? 4.25-4.5% might be a good return for our extra cash in this market.
  • What is the risk that interest rates go much higher in the future, raising our minimum payment on M2?
  • What do we want our debt situation to be 2, 4, 10 years from now?
  • Can we really get the rates/fees I’m assuming here? 😮
  • Are deductions for interest payments, reductions in PMI or M2 payments, or other things I’m leaving out important?

I hope this helps people in a similar situation as me. And as always, I appreciate any feedback or advice you might have based on this. Cheers!

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What to do when a stock you own is bought out in cash by another company?

This is happening to me, with one of my stocks right now: RCRC.

A few months ago, I bought about 50 shares of RC2 Corporation (RCRC), a maker of die-cast  and wooden toys, at $20. My wife and I were looking for an investment idea based on the toys and media we’re buying for our 2-year-old son. What I’d really like to do is own Thomas the Tank Engine, but the company owning the license (HIT Entertainment) is privately owned. The best we can do is to buy the companies with contracts on the toys. RC2 makes some of the Thomas brand toys and they just received a contract to make a wooden railway set for the Chuggington brand.

Chuggington is basically Disney’s modern day version of Thomas the Tank. The show is actually pretty good, and more importantly, our son Isaac loves it. We haven’t bought many Chuggington toys however because the trains aren’t compatible with the Thomas track we already bought. Presumably, the Chuggington wooden railway toys will be. This is pretty huge, and I expect RC2 to outperform once those toys start selling this year.

Anyway, there is no real play to be made here anymore because Tomy (TYO:7867), a Japanese company that makes Transformer and Pokemon toys among others, has agreed to by RCRC for $27.90 per share… cash. RCRC has accepted, and upon new of the offer and acceptance, the stock price shot up to $28 per share, where it’s been hovering as the plans get worked out. A nice little gain for us.

So what happens now. This is a little bit different than the case of a merger or acquisition where one company may purchase the other using stock. In that case, your RCRC stock would become Tomy stock at the price of the offer. In this case, our RCRC stock will actually become cash once the deal goes through. We have a few options right now:

(1) We can sell the stock now, before the purchase goes through. If we do, we’ll pay a transaction fee and score a nice win.

(2) We can wait until the purchase goes through, and presumably our investment account with Etrade will be updated to include no RCRC or Tomy stock and instead have a cash balance of $1395 ($27.90×50) added.

(3) We could still buy more stock if we wanted to.

Why would you do #1?
Especially earlier in the week, the stock was swinging a bit, and you could sell to make a bit more than $27.90/share. The transaction fee will wipe out some of this gain but not all. You would also avoid dealing with the potential delays or hassles that could come up when the stock is converted to cash. I’ve never had this happen with Etrade before, but have had delays and odd reporting on my account for a few days in the past when a company I owned was acquired for stock. There is also a chance the deal falls through, in which case the price might fall.

Why would you do #2?
By waiting for the deal to go through, one can basically cash out without paying the transaction fee. If you think the stock price would go higher if the deal fell through, then it might be a good idea to hold on for that chance.

Why would you do #3?
It would be stupid to buy the stock for more than $27.90 if the stock was about to be converted to cash for that amount. However, if you have reason to think the deal might fall through (higher bid, etc) you might be able to get a relatively risk free chance to try that out. If you can buy say 100 shares for $28, you only stand to lose $0.10 per share ($10.00) as long as the deal goes through. If a higher bid comes in you could make much more.

I’m leaning towards 2 right now… though heavily considering just cashing out now. In this case actually, there isn’t much chance for a higher bid because RCRC management already accepted the offer. I’m not sure if they could renig now (although secretly, I’m a little sad there wasn’t some kind of bidding war).

There is a class action suit started by some share holders, who I suppose think the company is selling too cheaply. That lawsuit could hold up the deal or even stop it. At that point, you would have to consider if you think the price will go higher or lower. In the case of the offer Microsoft made Yahoo a couple years ago, I would have expected YHOO to go lower. In this case, I expect RCRC to go higher. There is a risk either way.

Let me know what you think about this particular case… or your experience with similar situations in your own portfolio.

Activision Blizzard (ATVI)

A couple months ago I opened a position in Activision Blizzard (ATVI). Blizzard is the Pixar of the gaming industry. All of their games are blockbusters. The most notable title World of Warcraft collects $15/month from their millions and millions of players.

I got interested in the stock after picking up Star Craft 2, another blockbuster game from them. I knew that game was going to sell better than expected. I had been watching pro Star Craft 2 tournaments that were run off the game’s beta for a few months. At that point the game was already getting a ton of attention from gamers.

I wanted to bet on Blizzard. Blizzard was a private company before 2008, but merged with Activision December 2007. So I can buy Blizzard stock now… or really I have to buy the whole company. And although Blizzard is only a part of the company now, Activision is no slouch either with hits like Call of Duty and Guitar Hero. I’m bullish on videogames. This looks like a good play.

One thing that will not be baked into the stock price is the success of Star Craft 2 as an esport. There is a lot of upside here.

The original Star Craft (and Brood War expansion) are huge in South Korea, where there are multiple TV stations devoted solely to casting Star Craft games. Players are licensed by the government. While it’s been huge in Korea, it’s only been a relatively small movement in the rest of the world. However, since Star Craft 2 has come out, the rest of the world is getting on board with Star Craft as an esport and (more importantly) as a spectator sport.

Star Craft 2 is slowly taking over social video sites. Channels like Husky Starcraft and HD Starcraft have over 300,000 subscribers. The livestreams of Star Craft 2 players (good list here provided by Team Liquid) are often the most streamed channels on live streaming sites like UStream and Justin.TV. The game has an audience.

Blizzard also already collects royalty fees from companies running Star Craft 2 tournaments, such as the GomTV GSL in South Korea and the Major League Gaming events in the United States. These royalty fees are super small right now, and not a major source of revenue for a $16 Billion company. The business model now is the use the tournaments as a way to get exposure for the games and keep them relevant between production cycles. However, I think there is a large business in broadcasting these esport games in the future. Activision Blizzard will have the experience to take advantage of it.