Thread by @compound100x

$atvi thread 👇
Gaming is a LT secular trend. Outside of tencent, I chose atvi over many other game Co with great franchises. I've just not seen any other game Co with execs that journey to omaha each year

I want to invest with mgmt who understand capital allocation, have vision, able to deal with change in a fast changing industry. Dug through the annual letters and highlight how @BobbyKotick ticks all the boxes. Capital allocation: "We like to invest our capital in

proprietary products or services that have a history of profitability (which we measure in years,not days or months), are internationally appealing, serve to deepen our moats, and can reasonably be expected to generate a financial return that is greater than our wacc”

Move to buy back 37% stake from Vivendi (Shares issued during merger with Blizzard) at $13.6/share in 2013. 2013 was a transition year as company saw yoy revenue decline driven by tough 2012 comps (Diablo 3 released in 2012) and impact from new generation console transition.

Vivendi sold at the bottom with ATVI more than 3x from 2013 price

Purchased King.com (Candy Crush) in 2016 for $4.7b EV and 6x 2015 EBITDA. Acquisition was a bet market is not appreciating durability of mobile game franchises like Candy Crush.

With candy crush still topping mobile charts and starting to monetise ads, durability thesis is playing out nicely, 5b purchase price likely to be viewed as bargain price.

In terms of vision: In 2004: “Today majority gameplay takes place alone, we believe playing with others

through Internet is a big part of the future. Tipping point will be when broadband reaches 50-60% of households. As broadband penetration increase, we will be able to deliver games to more platform and devices”

2006: "Online gaming, wireless gaming and in-game advertising are 3 trends that will play significant role in driving LT performance”
2007: "Next Gen consoles allow extension of game life
through downloadable content.

Expect online transactions to help expand operating margins over time" (kotick already hinting at big margin expansion potential in 2007!)

On managing through change:
Those of us old enough will rmb atvi for Tony hawk, spiderman, guitar hero which they pivoted away frm

Company gradually pivoted to 100% owned IPs. How many pivots have we seen through their franchises?warcraft frm strategy to mmorpg to hearthstone. Call of duty with battle royale mode/mobile upcoming. Having the flexibility to change w trends is perhaps most impt in this industry

More capital allocation: Ended 2008 with $3.1b in net cash which provides for financial flexibility. In difficult and volatile times, our cash gives us a competitive advantage. As we have always done, we will use our capital wisely for the benefit of our shareholders

This includes repurchasing our shares under a $1b buyback program

Acknowledging mistakes (how many managers do publicly?): after record 2012 year, kotick wrote " did make some mistakes...WoW saw subscriber decline despite expansion pack launch...

working to tighten update time frames to keep fans engaged”

My favourite letter was that of 2010, but read the whole timeline to truly appreciate atvi and the evolution of the manager/team at atvi.

Finally, this is what cfo said during last quarter: I’m off to Omaha for.. probably the 20th time.. over 29 years, we’re going to be always be the guys that wait for that fat pitch”.

No doubt likes of ttwo, Nintendo, EA, have great franchises, some argue more durable than

those of atvi. But the question I ask is, do they have the capital allocators who have demonstrated track record of adding value. Always something you can't put on a spreadsheet and key to why I chose atvi over the rest.

DM me if you want my key takeaways frm all annual letters