Activision Blizzard Runs Up the Score; AutoNation Makes a Deal

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In this segment of the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross consider the quarterly results for Activision Blizzard (NASDAQ: ATVI), which outperformed as usual. So why did the stock dip slightly, and how much growth is the company looking at in the current quarter, with a new game from one of its biggest franchises debuting Friday?

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Then they move on to AutoNation (NYSE: AN), which reported a decent -- if waterlogged -- third quarter thanks to hurricanes Harvey and Irma. More importantly, it signed a major service deal with a little autonomous car company called Waymo, which as we all know is a unit of a big everything company called Alphabet.

A full transcript follows the video.

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This video was recorded on Nov. 3, 2017.

Chris Hill: Activision Blizzard's third quarter report was a lot like other recent reports from the video game giant. Profits higher than expected, and they raised guidance. Shares actually down on Friday, Matty. Is that simply a valuation thing? Because 2017 has been a great year for this stock.

Matt Argersinger: It's had such a great run. As you mentioned, they basically raised annual guidance almost every quarter this year. The results have been a bit lumpier this year because they had so many big releases last year. When big video games come out, it really shakes up the results. But, I think, they're going to finish the year strong because Call of Duty World War II actually comes out today. That's always their big holiday release every year. They're going back to the World War II period, which made Call of Duty the big hit that it is. I think that's going to be huge. But overall, the business itself, 49 million active monthly users at Activision, 42 million at Blizzard, 293 million at King Digital, which is Candy Crush. Those users, those millions of users, are spending an average of 50 minutes per day playing Activision games, which is a tremendous number. I'm really excited for 2018 because I think that's the year where e-sports are going to break out in North America, and Activision is kicking that off in January with their OverWatch League.

Hill: How is their marketing spend? You mentioned the new version of Call of Duty, I'm seeing a lot of ads on TV for that one.

Argersinger: Yeah, their market spend is always huge, but the value that they have is that these brands, these franchises have such huge followings. So, I doubt they're spending a lot more than they have in previous years.

Hill: AutoNation's third quarter profits came in a higher than expected. You tell me, Ron, is that why the stock was up 15% on Friday?

Ron Gross: No, I do not think so, because it was kind of a blah quarter. They beat estimates, but adjusted profits were down 3%, and the adjustment is for the Hurricane Irma, which took about $8 million after tax off the bottom line. For the most part, it was a rather lackluster quarter. The reason the stock popped, I think, is that they announced a multi-year service agreement with Waymo, which is Google's autonomous car division. AutoNation is going to provide long-term vehicle maintenance and repairs for Waymo's self-driving fleet. It remains to be seen how that translates, what level of income and revenue that translates to, but I think everyone got pretty excited that these traditional car dealerships are going to have a place in the autonomous world.

Hill: Ron, since you're waiting on a new car, there is an AutoNation not too far from Fool HQ. We could hit that after the show, if you want.

Gross: [laughs] So rude. Hit a man while he's down.

Hill: [laughs] I'm trying to help you.

Gross: Tesla says they don't think people are going to cancel and ask for their refunds back, I have to admit, I'm thinking about it. I haven't pulled that trigger yet.

Hill: A couple of weeks ago, I saw a story on MarketWatch about a secondary market opening up where people are essentially selling their place in line at a profit. So, you plunked down $1,000? You can sell that for $2,000 or $3,000 to someone who wants your spot in line.

Gross: Tweet me, @RonGross144, let's talk.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any of the stocks mentioned. Matthew Argersinger owns shares of Activision Blizzard, Alphabet (C shares), and Tesla. Ron Gross owns shares of Activision Blizzard and Alphabet (C shares). The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), and Tesla. The Motley Fool has a disclosure policy.