Adjusted Valuations Reveal Activision Blizzard’s Economic Reality And True Value

August 22, 2016


  • Using Adjusted Earnings and Assets, ATVI’s Adjusted Return on Assets (ROA’) was 18% in 2015 – thrice the traditional 6% ROA most financial databases report.
  • This difference is primarily caused by ATVI’s $7.1bn goodwill and $646mn investment in R&D, which significantly distort the firm’s economic reality.
  • However, although the firm’s ROA’ levels are higher than their as-reported ROA, ROA’ levels have consistently fell since peak 30% levels in 2011.
  • Also of note is the difference between ATVI’s Adjusted Forward Value to Earnings (V/E’) ratio of 33.2x versus the firm’s traditional forward P/E of 20.7x.

ATVI - PVP - 2016 08

Performance and Valuation Prime™ Chart

Under GAAP, the as-reported financial statements and financial ratios of ATVI do not reflect economic reality. The traditional ROA computation understates the company’s profitability by incorrectly including certain items. The distortion of both profitability measures and valuation metrics of ATVI are primarily driven by the inclusion of the firm’s goodwill ($7.1bn), which inflates their asset base, and by incorrectly expensing their R&D investments ($646mn).

After adjusting for similar issues and a host of other GAAP-based miscategorizations, Valens calculates ATVI’s Adjusted Return on Assets (ROA’) as 18% in 2015. In contrast, most financial databases show a traditional ROA of only 6%. On the other hand, our analysis shows that ATVI has an Adjusted Forward P/E (V/E’) of 33.2x, compared to the firm’s traditional forward P/E at 20.7x. The profitability of ATVI’s operations and their equity’s true value are therefore not what traditional metrics originally indicate.

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