Stock Analysis on Net
Stock Analysis on Net

Activision Blizzard Inc. (NASDAQ:ATVI)

This company has been moved to the archive! The financial data has not been updated since July 31, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Activision Blizzard Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.34%
01 FCFF0 2,220
1 FCFF1 2,418 = 2,220 × (1 + 8.91%) 2,232
2 FCFF2 2,612 = 2,418 × (1 + 8.00%) 2,225
3 FCFF3 2,797 = 2,612 × (1 + 7.08%) 2,199
4 FCFF4 2,969 = 2,797 × (1 + 6.17%) 2,155
5 FCFF5 3,125 = 2,969 × (1 + 5.25%) 2,094
5 Terminal value (TV5) 106,762 = 3,125 × (1 + 5.25%) ÷ (8.34% – 5.25%) 71,542
Intrinsic value of Activision Blizzard Inc. capital 82,448
Less: Long-term debt (fair value) 2,868
Intrinsic value of Activision Blizzard Inc. common stock 79,580
 
Intrinsic value of Activision Blizzard Inc. common stock (per share) $101.14
Current share price $92.76

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Activision Blizzard Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 72,983 0.96 8.56%
Long-term debt (fair value) 2,868 0.04 2.55% = 2.96% × (1 – 14.00%)

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 786,798,320 × $92.76
= $72,983,412,163.20

   Long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (13.00% + 15.00% + 16.00% + 8.00% + 18.00%) ÷ 5
= 14.00%

WACC = 8.34%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Activision Blizzard Inc., PRAT model

Microsoft Excel
Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest expense from debt 108 108 99 90 140
Net income 1,513 2,699 2,197 1,503 1,813
 
Effective income tax rate (EITR)1 13.00% 15.00% 16.00% 8.00% 18.00%
 
Interest expense from debt, after tax2 94 92 83 83 115
Add: Dividends 367 365 316 283 259
Interest expense (after tax) and dividends 461 457 399 366 374
 
EBIT(1 – EITR)3 1,607 2,791 2,280 1,586 1,928
 
Long-term debt, net 3,611 3,608 3,605 2,675 2,671
Shareholders’ equity 19,243 17,599 15,037 12,805 11,357
Total capital 22,854 21,207 18,642 15,480 14,028
Financial Ratios
Retention rate (RR)4 0.71 0.84 0.82 0.77 0.81
Return on invested capital (ROIC)5 7.03% 13.16% 12.23% 10.24% 13.74%
Averages
RR 0.79
ROIC 11.28%
 
FCFF growth rate (g)6 8.91%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 See details »

2022 Calculations

2 Interest expense from debt, after tax = Interest expense from debt × (1 – EITR)
= 108 × (1 – 13.00%)
= 94

3 EBIT(1 – EITR) = Net income + Interest expense from debt, after tax
= 1,513 + 94
= 1,607

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,607 – 461] ÷ 1,607
= 0.71

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,607 ÷ 22,854
= 7.03%

6 g = RR × ROIC
= 0.79 × 11.28%
= 8.91%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (75,851 × 8.34% – 2,220) ÷ (75,851 + 2,220)
= 5.25%

where:

Total capital, fair value0 = current fair value of Activision Blizzard Inc. debt and equity (US$ in millions)
FCFF0 = the last year Activision Blizzard Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Activision Blizzard Inc. capital

FCFF growth rate (g) forecast

Activision Blizzard Inc., H-model

Microsoft Excel
Year Value gt
1 g1 8.91%
2 g2 8.00%
3 g3 7.08%
4 g4 6.17%
5 and thereafter g5 5.25%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 8.91% + (5.25% – 8.91%) × (2 – 1) ÷ (5 – 1)
= 8.00%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.91% + (5.25% – 8.91%) × (3 – 1) ÷ (5 – 1)
= 7.08%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.91% + (5.25% – 8.91%) × (4 – 1) ÷ (5 – 1)
= 6.17%