Is It Time to Bail on Activision Blizzard?

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In the end, it's all about guitar heroes at Vivendi.

The French conglomerate that hooked up its Blizzard Entertainment hotbed of multiplayer fantasy games with stateside gamer Activision to create Activision Blizzard (NAS: ATVI) is cashing out some of its chips.

Vivendi revealed yesterday that it sold $427 million of Activision Blizzard shares. It's a big sum, but it really only means that it's reducing its majority stake in the gamer from 63% to 60%.

In an odd juxtaposition, it was Vivendi's Universal that agreed to pay Citigroup (NYS: C) $1.9 billion last week to take EMI's record label off its slippery hands. Is Activision Blizzard simply trading the company that abandoned its Guitar Hero franchise in February for a real guitar hero factory? Is this a move done simply to shore up ready cash during the European credit crisis or is it a tactical retreat?

If the move is strictly strategic it's not hard to imagine why Activision Blizzard isn't as attractive as it used to be.

The stock took a hit after reporting earnings last week. The numbers were fine. Call of Duty: Modern Warfare 3 set new initial sales records. However, it was the 800,000 net World of Warcraft cancellations -- from the Blizzard arm that Vivendi knows so well -- that spooked investors.

It's not just a quarterly fluke. World of Warcraft players peaked at 12 million a year ago, and now it's down to 10.3 million. There was pressure on Chinese partner NetEase.com (NAS: NTES) on the news, since the company attributed the net defections to its Asian presence, but this is an ongoing problem.

Activision Blizzard will continue to rack up sales records for its Call of Duty franchise, but that's not enough when the rest of its empire is struggling. After posting essentially flat adjusted revenue last year, analysts are targeting a top-line decline of 11% this year.

The industry has been in a funk for three years, and Activision Blizzard hasn't done as much as rival Electronic Arts (NAS: ERTS) has in taking advantage of the casual gaming movement that's been growing at the expense of diehard gaming.

It's important to remember that Vivendi still has a huge 60% stake here. The recent sale isn't a material surrender. There are several of our newsletters that still believe in Activision Blizzard, and the stock is popular around Fooldom with its four-star Motley Fool CAPS rating. I don't see it that way, so I'm putting my money where my pessimism is and initiating a call this afternoon for the stock to underperform the S&P 500 over the next few months.

The game is changing. Vivendi probably realizes this, even if it will never say that out loud while it still holds on to so much of the company.

 If you want to see how this game plays out, addActivision Blizzardto My Watchlist.

At the time this article was published The Motley Fool owns shares of Activision Blizzard and Citigroup. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of NetEase.com and Activision Blizzard, as well as creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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