Activision Blizzard, Inc. (ATVI) Minjoo Kim, Keng Hoe Wong, Qing Yi Yu, Salta Muslim-Ali, Vincent Yu & Vrushank Vora NME W11: Greg Yun

Introduction Largest pure-video game developer/publisher Merger of Vivendi Games and Activision in 2007 Majority Owned by Vivendi SA N.A., Europe & Asia Stock Summary Company Name:Activision Blizzard Stock Symbol:ATVI Market Capitalization: $ 13,404 MM Share Price: $ LTM Revenue: $ 4,447 MM LTM Net Income: $ 418 MM Forward P/E:15.5x

Product Line

Product Line (Continued)

Thesis Industry: Growing Chinese Market Move towards digital revenue channels Move towards non-casual games from casual games Company: Consistent trend of quality “hit releases” Ability to innovatively monetize revenue opportunities Commitment to increasing shareholder value Quant: Analysts are undervaluing company due to 4Q failure to meet GAAP revenue expectations Cancellation of Guitar Hero

Industry Outlook

Industry Trend (Global) 52.9 billion (2009) / 86.8 billion (2014) Projected CAGR of 10.6 Percent Growth in industry MMOG gaming Online gaming Mobile gaming Fig. 1 Media Spending Growth Outlook by Segment from PwC

Industry Trend (Regional) Current Generation Console - 23% Growth First-Person Action Genre - 29% growth N.A./Europe sales Wii/Handheld Devices – Decrease in Sales Top 10 titles - 37% of U.S. sales Digital Distribution – 14% Growth in N.A./Europe sales Fig Revenue Breakdown of Industry from Newsweek Fig Game Growth by Segment by Newzoo

Industry Trend (China) 26% increase in Chinese gamers accounted for 61% increase in 2009 global online game revenue 20.9% CAGR of online game market through 2014 MMOGs account for 77% of online revenue growth Piracy is barrier to entry

Company Thesis

Revenue Sources/Channels Subscription/Licen sing: 31% Product Sales: 69% Digital Sales: 30% Overall / 20% Growth International Operations: 46% Asia 6% Overall / 32% Growth Fig. 5 ATVI Revenue Growth in 2009 Year-End Data

World of Warcraft 12 million subscribers (monthly US / hourly China) / Value Added Services $3.5 million in one day on a virtual horse WoW: Cataclysm was fastest-selling PC game ever Fig. 6 MMOG Breakdown May 2008 Fig. 7 MMOG Subscriptions 2011

World of Warcraft (China) 5% of China’s $3 billion MMO market 1.5 million paying customers in first month In 2008, one of three MMOs in China with over 1 million peak computer users (PCU) 5.5 million Asian Users /2.6 million PCU 55% Royalty - NetEase

Market Strategy Consolidate energies on high-margin hits WoW & CoD – 62% of Revenue CoD Downloadable Content – $21 million in 24 hours (Record for Xbox Live) Expand in China WoW: Cataclysm CoD: China F2P Digital Growth Fig. 8 US MMOG Breakdown May 2010

Competitive Advantages Quality Assurance with Big Recognizable Hits #1 Publisher in N.A. / Europe CoD: Black Ops was #1 Title Worldwide: $1 billion revenue 3/5 Top PC Titles in N.A./Europe In-line with Industry Trends 20% Digital Growth / Only 30% of total revenues Market Leaders in non-casual gaming titles Console Game Leader Crowd Effect Online Community in Battle.net

Competitive Advantages (Continued)

Future Releases

Recent News Canceled Guitar Hero/Tony Hawk Series Laid off 500 Employees Shares dropped 8% on February 10 th Non-GAAP EPS of 53 cents beat 4Q expectations Year End GAAP EPS increased 33 cents Year End Non-GAAP EPS Increased by 15% Quarter End GAAP EPS dropped 20 cents Year End Non-GAAP Revenues 20% Growth

Shareholder Strategy 2009: $1.2 billion in shares repurchased 2010: $1.5 billion in shares to be purchased Three-Year Total – $3.7 billion Cash Dividends increased by 10%

Portfolio/Investment Risk Factors Deterioration of Economic Condition Controlled Company Lack of Franchise/Hit Diversification GAAP defers increasingly online-generated revenue Current tech holdings PWRD: Perfect World

Company Thesis Consistent trend of quality “hit releases”; ability to innovatively monetize revenue opportunities, especially in alignment with the current industry trends; and commitment to increasing shareholder value; demonstrate that ActivisionBlizzard to be a consistently successful leading innovator in the gaming market.

Quant Thesis

Historical Growth Summary ($ in millions of US dollars)CAGR Fiscal Year Ending: 12/ Revenues $1,388.6 $1,349.0 $3,026.0 $4,279.0 $4, % Growth-2.9%124.3%41.4%3.9% Operating Income (40.0) % Growth142.5%-122.5%96.6% EBITDA % Growth38.7%43.2%118.3%32.3% Net Income % Growth 155.2%-64.5%564.2%38.8%

Historical Margins ($ in millions of US dollars) Fiscal Year Ending: 12/ Revenues $1,388.6 $1,349.0 $3,026.0 $4,279.0 $4,447.0 Gross Margin27.1%67.7%39.2%46.1%52.2% Operating Margin5.3%13.2%-1.3%9.5%17.9% EBITDA Margin12.5%17.9%11.4%17.6%22.4% Net Income Margin6.4%16.9%2.7%12.6%16.8% Assets 1, , , , ,406.0 Asset Turnover0.7x0.5x0.2x0.3x Return on Assets4.7%8.7%0.6%3.9%5.6% Shareholders' Equity 1, , , , ,203.0 Financial Leverage1.3x1.4x1.3x Return on Equity6.3%12.2%0.7%5.0%7.3%

Historical Financial Health ($ in millions of US dollars) Fiscal Year Ending: 12/ Debt $- Shareholders' Equity 1, , , , ,203.0 Operating Income (40.0) Interest Expense Current Assets 1, , , , ,385.0 Inventory Current Liabilities , , ,907.0 Debt/Equity0.00 Current Ratio Quick Ratio Interest Coverage No Interest Exp59.33N/A No Interest Exp

Base case Assumptions Historical Financials Revenue GrowthN/A-2.85%124.31%41.41%3.93% Operating Margin5.29%13.19%-1.32%9.49%17.94% Effective Tax Rate24.37%-29.21%200.00%-29.80%9.27% Depreciation & Amortization7.22%4.67%12.72%8.11%4.45% Capital Expenditures1.68%5.04%1.52%1.61%2.18% NWC as % of Revenue17.12%19.50%5.72%-9.89%-23.16% Growth and WACC Assumptions Base Revenue Growth $3,993.6 $4,051.6 $4,375.7 $4,813.3 $5,390.9 Operating Margin18.4% Effective Tax Rate15.8% Depreciation & Amortization3.0% 2.2% Capital Expenditures2.2% NWC as % of Revenue2.0%-4.0%-1.0%0.0%1.0% Tax Rate15.8% Alternative Beta0.65Terminal Growth Rate Assumption2.50% Market Rate9.00%Terminal Shares Outstanding1,200.0

Low & High Case Assumptions Low Revenue Growth-15.0%1.0%5.0%7.0%9.0% Operating Margin18.4% High Revenue Growth-10.0%4.5%9.0%11.0%13.5% Operating Margin18.4% Terminal Growth Rate Assumption2.00% Terminal Shares Outstanding1, Terminal Growth Rate Assumption3.00% Terminal Shares Outstanding1,200.0

DCF Output: Base Case Scenario:Base Terminal Growth Rate: 2.50% Terminal Shares Outstanding:1,200.0 Weighted Average Cost of Capital:7.15% Present Value of Forecasted Cash Flows:2,958 Present Value of Perpetual Cash Flows:12,609 Present Value of Total Cash Flows:15,567 Value of Debt:0 Value of Cash:3,508 Value of Equity:19,075 Value of Equity Per Share:$15.90 Range (in %):10% Value Per Share Range:$14.31-$17.49 Current Price of Stock: $11.12 P/V Ratio:0.64x-0.78x Potential Upside:28.7%-57.2%

DCF Output: Low and High Case Scenario:DownsideUpside Terminal Growth Rate: 2.00% 3.00% Terminal Shares Outstanding: 1,200.0 Weighted Average Cost of Capital: 7.15% Present Value of Forecasted Cash Flows: 2,500 3,097 Present Value of Perpetual Cash Flows: 10,219 15,206 Present Value of Total Cash Flows: 12,719 18,303 Value of Debt: 0 0 Value of Cash: 0 3,508 Value of Equity: 12,719 21,811 Value of Equity Per Share: $10.60 $18.18 Range (in %): 10% Value Per Share Range:$9.54-$11.66$16.36-$19.99 Current Price of Stock: $11.12 P/V Ratio:0.95x-1.17x0.56x-0.68x Potential Upside:-14.2%-4.8%47.1%-79.8%

DCF Sensitivity DCF Valuation Sensitivity Analysis WACC7.15%WACC Sensitivity0.50% Terminal Growth Rate2.50% Term. Growth Sensitivity0.25% WACC $ %6.65%7.15%7.65%8.15% 2.00% $17.65 $16.08 $14.82 $13.78 $12.91 Terminal2.25% $18.46 $16.71 $15.32 $14.19 $13.25 Growth2.50% $19.39 $17.42 $15.88 $14.64 $13.62 Rate2.75% $20.45 $18.22 $16.51 $15.14 $ % $21.68 $19.13 $17.20 $15.69 $14.47

Football Field

Comparables Trading Comparables Valuation ($ in millions except for per share data) ATVI MultiplierLow Mult. High Mult.Price (low) Price high)Include? EV/Revenue (2011E)$3, x-1.2x$4.43-$6.82Yes EV/Revenue (2012E)$4, x-1.1x$4.56-$7.04Yes EV/EBITDA (2011E)$1, x-14.1x$13.94-$19.83Yes EV/EBITDA (2012E)$1, x-13.3x$13.42-$22.03Yes P/E (2011E) $ x-27.5x$13.76-$19.77Yes P/E (2012E) $ x-35.0x$13.74-$30.83Yes P/B$ x-2.6x$0.00- Yes Value Range:$9.12-$15.19 Suggested Premium:-18.0%-36.6%

Comparables Valuation Comps ($ in millions except for per share data)ATVIERTSTTWOTHQI Price Per Share $ Market Capitalization 13, , , Shares Outstanding 1, Estimated EPS (2011E) $0.72 $0.67 $0.85 $(0.28) Estimated EPS (2012E) $0.88 $0.86 $1.04 $0.16 Estimated Revenue (2011E)3,900.03,760.01, Estimated Revenue (2012E)4,540.03,940.01, Estimated EBITDA (2011E)1, Estimated EBITDA (2012E)1,

Summary Company strength is aligned with industry trends Beginning to capitalize on tremendous market potential in China Leading innovator in the market; consistent history of hits Analysts don’t believe stock can overcome Guitar Hero cancellation

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