Shares of King Digital Entertainment PLC (NYSE:KING), Activision Blizzard, Inc. (NASDAQ:ATVI), Sprint Corp (NYSE:S), and Mobileye NV (NYSE:MBLY) are trending this morning due to different catalysts. Let’s take a closer look at what is happening with these companies and analyze what the world’s greatest investors think of each of their stocks.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds actually managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among these elite hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).
Shares of Candy Crush maker King Digital Entertainment PLC (NYSE:KING) are up by 14.22% in early morning trading after gaming giant Activision Blizzard, Inc. (NASDAQ:ATVI) announced that it will buy King for $5.9 billion, or $18 in cash per share. The boards of both companies have approved the deal, which is expected to close by Spring of 2016. Activision Blizzard will be funding the acquisition with $3.6 billion in offshore cash and a term loan. Activision’s management expects the deal to be accretive to the firm’s estimated 2016 non-GAAP EPS by around 30%.
Critics have lambasted King Digital for being a one product company and portrayed the stock as a replay of Zynga Inc (NASDAQ:ZNGA), a former high flier that rallied briefly above its IPO price and promptly tanked afterwards as users lost interest in the company’s social games. By selling itself to Activision Blizzard, King Digital will avoid Zynga’s fate (although its sale price of $18 in cash per share is below its IPO price of $22.50 per share).
Activision is buying King Digital because it isn’t as strong in mobile as the gaming giant is in PC and console gaming. By buying King Digital, Activision will be adding Candy Crush Saga to its hit gaming portfolio which includes the Call of Duty and Warcraft franchises, and will instantly gain valuable mobile market share and expertise. Activision bulls hope the firm’s new employees will develop other hit mobile games that can move Activision’s bottom line.
In addition to the news of its big acquisition, Activision also pre-released its quarterly earnings results, posting third quarter EPS of $0.21 on revenues of $1.04 billion, beating estimates by $0.02 per share and almost $90 million, respectively. Guidance was less optimistic, however, with management expecting 2015 EPS of $1.31 on revenues of $4.65 billion, versus estimates of $1.34 in earnings per share on $4.66 billion in revenues.
Our data shows that hedge funds were bullish on Activision Blizzard, Inc. (NASDAQ:ATVI) in the second quarter. A total of 46 funds of the 730 elite funds that we track reported stakes in the company worth $1.57 billion as of the end of June, up from 41 funds with $1.02 billion in Activision shares at the end of March. Meanwhile, 24 lucky funds owned $378.59 million of King Digital Entertainment PLC (NYSE:KING)’s shares on June 30, with Robert Pitts‘ Steadfast Capital Management among them with a holding of 8.3 million shares.
On the next page, we examine why Sprint and Mobileye NV are trending in opposite directions.