Atvi. Most of you probably already know what this company does. They got video games, such as like call of duty. You got world of warcraft, you know hearthstone, all those other kind of games like that were going to be taking a look at their financials and seeing if theyre, fundamentally a sound and safe company. So todays dates the 31st or this is the morning, so were at the close of august 30th, theres 81 dollars just about that gives us a market cap of 63 billion, its quite a large company. I think this is one of the larger ones. I do just want to check out ea how which the market for ea 40 yeah so theyre. Definitely one of the larger out of the gaming companies p e ratio about 24 kind of high eps 3.3. They do have a dividend: 0.57, nothing too big and actually really quite small dividend. To be honest, not i dont even know really why theyre giving a dividend but its whatever they, you know, decided to pick. If we go down here, we can see. The analysts are actually actually recommending to buy this, especially last month and the month before june july. Seeing a lot of buys and strong buy interesting, though now the stock price did fall, we got more, people saying hold as opposed to buy more people that are saying buying now, because their price did fall. Quite a bit, like i mean, were talking about 20.
30. Sorry, maybe 20 to 15, depending on where you look at it just the last couple months. I do think its getting into a better buying zone. I do think up here was kind of expensive. I mean, i still do think its a little expensive, which we will get into in a minute. However, it is becoming more attractive, so were going to the financials, but i already do have an excel sheet for that, so we will take a look at that. I also do have like companies at ea take two also on here, so we can do some comparison. I already did do a video comparing these companies. I could leave a link in this description below i also didnt, already analyze take two. We also will be looking at ea eventually, but i did already do video and take two interactive which i do like a lot. So lets take a look at activision, so 63 million earth billion market cap. Here we got the revenue. Yes, seven million, seven billion. Seven point: five, six point: five, eight so somewhere between seven and eight billion each year, is what theyre doing q1 and q2 this year they did 4.5 billion. So if we just multiply that by two, that should give nine billion in revenue, which should be hopefully more than all these years, but again thats just estimating just and thats, not necessarily accurate, so operating income, we got 1.3, 1.9, 1.7, eight and now theyre.
At one point, almost one point eight for already for this year, so in the beginning of this year the first two quarters they already did more than an operating margin, sorry operating income than they did in 2019. So they are on track to having another, really good quarter, similar to 20 20 or a year similar to 2020.. These margins are really strong to look at these. We got 26 26 30 ‘, and these are very high operating margins kind of businesses that i, like ones that have very good margins. Their net income margins are also really strong too 2017 wasnt that good, but you can see that theyve been consistently sustaining. Above almost basically above 25 percent in net income, quite strong good love to see this here we have the equity, 9.4, 11, 15, 16, so basically over time, equity in the companys growing its a good sign at least thats. One of the indicators that i like to see in the growth of companies, especially on their balance sheet ordinary shares, we got 758 778, so did dilute the last couple years about 20 mil 20 million shares, which isnt that big of a number see thats. Only about a two to three percent share dilution so its not that bad, but they are diluting the shares total debt 4.3 to 3.6. So they did pay back some debt, but then or they did pay back a lot, then they took on some more.
But if you look at the debt to equity ratio compared to how much i could really have in the company the debt, it doesnt really have any significance at all. I bet if we were to look at the net debt, it would be almost nothing here. We go to free cash flow growth, sorry free cash flow and millions 2 billion 1.6 2 billion. Here they already did one point – basically 2 billion this year, so hopefully theyll do above 2 billion again or sorry. These two quarters they did 1.2 billion. So we should probably assume could assume that this year they will do 2 billion in free cash flow, so on average that gives us about a 1.9 billion in free cash flow and that if we put a 20 multiple on it, thatll give us the mark. Cap of about 38 billion, which is nowhere close to what they are right now, which is 63 billion. There is a lot more expectation in this company, though, especially because we are expecting the esports and gaming industry to grow. Weve been expecting it for years, but now its kind of taken into effect so paying a higher multiple for this type of cash flow is almost necessary because were not expecting them to make about 2 billion each year in a couple years were hopefully expecting them to Make much more free cash flow just because again were expecting the space to grow, so just real, quick just to get some other things out of the way we got.
The current ratio here, 4.83, very healthy, so health of the company is not a problem. Their bounty is pretty strong. I just wish they werent diluting the shares a little bit. They do have that small dividend which actually is a 14 payout ratio because of how many shares they have, so even that small dividend is kind of impacting them. I would like to just have them completely disregard the dividend and either buy back their shares, or you know kind of put into something else, but i dont thats their decision. Obviously so the balance sheet seems strong, they are growing the revenue and they have great operating and income margins. However, just the free cash flow that they currently are generating doesnt necessarily make me want to think that this company is worth 63 billion at todays current value. Even if i am anticipating a little bit in the future, in order for them to have a 60 billion dollar market cap and to give lets say 20 multiple again, they got to be making almost 4 billion in free cash flow like today, and so we could Anticipate them to make 40 so if they did make lets, say 40 billion. I dont know if id put a 20 multiple on that, but they did make 40 billion sorry for 4 billion times times it by 15.. That gives 60 billion and i guess if we do do 20, be 80 billion. So right now, 80 billion is the absolute max of the company that i would probably pay for, but thats assuming all sunshine rainbows.
For me, in the next couple years with the gaming industry, so i do think again its still a little expensive, but this this sector will grow in the future, at least from my vision of it. I do think the gaming industry would definitely grow and activision will have a market share of that because of the games and space that they take up like call of duty and world of warcraft, i think, are quite powerful games. They are a little bit lagging. I feel like in the kind of recent years, but they are quite sustainable in what they produce for the the player base. I do think that again valuing these youre, not i wouldnt use this free cash flow. Multiple that much i would use it as an estimate. I think 38 is the definitely lower limit of where the company, if it ever hit that then its definitely very valuable, at least in my eyes, 63 might be a little ahead of itself. Just for my personal portfolio. But again, it depends how bullish you are on the space and sector and how badly you want to buy this company. We could just briefly take a look at like ea ea, for example, theyre making about 1.6 billion in free cash flow, which is kind of close to what activision is actually doing 1.9. But if you put a 20 multiple on that it gives us that gives us a 32 billion market cap which theyre at 40.
So it actually seems like a little bit more of a value to get by ea, but then again, ea isnt activation. They dont have the same games. They might not be making the same amount of money in the future. We can take a look at take two awesome. You could do this average of the free cash flow multiply by 20., get about 12 about 13 billion market cap. Theyre at almost 20, so it is a little expensive too, and so all in the gaming sector, no matter what we look at with the free cash flow is going to look a little expensive, so thats why we have to look at other factors. Let me just wrap up my thoughts about activision. The revenue hasnt been increasing too much these last couple years, which i would like to see, especially in a growing company. However, their margins have been increasing and not only the increasing theyre also just incredibly high same thing. With the net income, just very high margins equity in the company is increasing its good to see. I would like to see some share buybacks. However, this small dilution isnt necessarily that bad of a thing they basically have no debt, which is a good sign. I do like companies with low debt high margins, so this is definitely fitting. The criteria theyre not making as much in free cash flow as i would like. However, i would anticipate them to generate more in the future its just.
What do i want to pay at todays, current value for that future expectation and im not sure that its at that price, just yet activision is also going through a lot of lawsuits and just uh. I guess you know a lot of things in the news. So now now either might be a great time to buy, or in a couple months, maybe even a better time to buy. I do think this company looking at it. It actually looks quite strong. All these numbers look really good its just. I dont think i would pay for what it is today right now i might miss out on some gains in the future, but i think there are a lot of other things that im eyeing up right now. If you enjoyed this video, i am planning on doing one about ea2 and i already did one about take two. We also got some other ones we got like corsair. I think i did one on that. I do want to take a look at logitech, uh zynga. I dont even know how to pronounce it turtle beach. We got some other companies to take a look at in the gaming sector and i do want to gain i i definitely. This is a space that i want to put some money in for the future, because i definitely just see the market cap expanding, but getting in at a price that i i want is important. Just doing more research is going to help me decide that yeah.
Let me know what you thought about activision: do you, like the company, think its solid? What do you think about like call of duty world of warcraft in the future? Do you think their activision will be able to expand to? I guess, maybe other games, because i feel like after a while people can only play so much wow and call of duty, because it definitely got to me to the point where i just dont really feel.