More controversy emerged at Activision Blizzard, Inc. (NASDAQ:ATVI) yesterday when hundreds of employees announced a company-wide walkout today. The walkout is in reaction to the company’s response to a sexual harassment lawsuit. The company’s CEO, Bobby Kotick, has already apologized for what he described as a ‘tone deaf’ response, and promised to make changes. Yesterday the share price fell more than 6%, though it has recovered some of those losses today.
The publicity means there will now be even more attention on the company and the lawsuit. It’s also not the only controversial news surrounding the company. Activision was in the news in June when 46% of shareholders voted against Kotick’s salary package. In 2020 Kotick agreed to a 50% cut in his base salary, but it has since emerged that he’s still likely to pocket $155 million this year as stock options come due. Some activist investors feel his pay is excessive at a time when the company’s earnings growth is expected to underperform both the market and the media sector.
It looks like Activision Blizzard may be in for a period of turmoil, which can often lead to share price volatility. But that also depends on who the key shareholder groups that own the stock are. Activision Blizzard is a pretty big company and has a market capitalization of US$65b. Normally institutions would own a significant portion of a company this size. Taking a look at our data on the ownership groups (below), it seems that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about Activision Blizzard.
What Does the Institutional Ownership Tell Us About Activision Blizzard?
Many institutions measure their performance against an index that approximates the local market. So, they usually pay more attention to companies that are included in major indices.
Institutions account for 88% of Activision Blizzard shareholders, which is quite high. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They, too, get it wrong sometimes. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast.
We note that hedge funds don't have a meaningful investment in Activision Blizzard. The Vanguard Group, Inc. is currently the largest shareholder, with 8.3% of shares outstanding. For context, the second largest shareholder holds about 7.5% of the shares outstanding, followed by an ownership of 6.6% by the third-largest shareholder.
Insider Ownership of Activision Blizzard
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answers to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
We generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our data suggests that insiders own under 1% of Activision Blizzard, Inc. in their own names. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own US$459m worth of shares. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.
General Public Ownership
The general public holds a 11% stake in Activision Blizzard. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
What does this mean for Shareholders and Potential Investors?
Institutions own 88% of Activision Blizzard which should provide some stability. Institutions have longer time horizons and are less likely to sell a stock due to negative sentiment in the short term. If the stock was mostly owned by retail investors, negative news would be more likely to lead to volatility.
The lawsuits and the employee walkout do suggest that Activation Blizzard may have a serious problem with harassment, morale and inclusivity. If this is not addressed the company may struggle to retain and attract talent in the future.
If these issues are not adequately addressed, institutional investors may lose confidence in the company or the management team. So, while the large block of institutional shareholders can provide stability in the short term, it can also lead to persistent selling if the outlook doesn't improve.
It’s often interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. For instance, we've identified at least 1 warning sign for Activision Blizzard that you should be aware of.
If you would prefer to discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.