This document contains an analysis of Activision Blizzard using a discounted cash flow valuation model. It projects revenue, costs, earnings, and cash flows for Activision Blizzard through 2013 and estimates a terminal value and enterprise value of $18.1 billion. This results in a projected share price of $13.87, higher than the current price of $10.87. The analysis assumes long-term revenue growth rates of 10% for product sales and subscriptions. A terminal growth rate of 5% and discount rate of 8.18% are used to calculate the terminal and net present values.

1. Stanford Blyth Fund - Activision Blizzard BUY Pitch
ACTIVISION BLIZZARD DISCOUNTED CASH FLOW MODEL
MULTIPLE-SCENARIO ANALYSIS TOGGLE
Current Price $10.87
Product Sales Growth 10.00%
Subscription & Licensing Growth 10.00%
Terminal Growth Rate 5.00%
Risk-Free Rate 4.22%
Rm-Rf 6.00%
Projected Price $13.87
Effective Tax Rate -43% * Terminal & Rm-Rf are very sensitive to changes
Forward Effective Tax Rate 35% *Received income tax benefit as result of net loss
*Assumed 35% tax rate from 2010 forward

2. sensitive to changes
t as result of net loss
2010 forward

3. Page 74
OPERATING ASSUMPTIONS
Historical Projected
2006 2007 2008 2009 2010
REVENUE ITEMS
Product Sales $421 $457 $1,872 $2,059 $2,265
Growth 8.55% 309.63% 10.00% 10.00%
Subscription & Licensing 597 892 1,154 1,269 1,396
Growth 49.41% 29.37% 10.00% 10.00%
Total Revenue 1,018 1,349 3,026 3,329 3,661
COGS ITEMS
Product Costs 153 171 1,160 789 868
% Sales 15.03% 12.68% 38.33% 38.33% 38.33%
Software Royalties 71 52 267 182 200
% Sales 6.97% 3.85% 8.82% 8.82% 8.82%
Intellectual Property Licenses 24 9 219 149 164
% Sales 2.36% 0.67% 7.24% 7.24% 7.24%
COGS MMORPG 119 204 193 131 144
% Sales 11.69% 15.12% 6.38% 6.38% 6.38%
Total COGS 367 436 1,839 1,251 1,377
Gross Profit 651 913 1,187 2,077 2,285
Margin 63.95% 67.68% 39.23% 62.40% 62.40%
SG&A Items
Product Development 246 397 592 $651 $716
% Sales 24.17% 29.43% 19.56% 19.56% 19.56%
Sales & Marketing 147 172 464 $510 $561
% Sales 14.44% 12.75% 15.33% 15.33% 15.33%
Restructuring Costs 4 (1) 93 $102 $113
% Sales 0.39% -0.07% 3.07% 3.07% 3.07%
General & Administrative 133 166 271 $298 $328
% Sales 13.06% 12.31% 8.96% 8.96% 8.96%
Total SG&A 530 734 1,420 1,562 1,718
Operating Profit (EBIT) 121 179 (233) 515 567
Margin 11.89% 13.27% -7.70% 15.48% 15.48%
Depreciation & Amortization 39 63 385 424 466
Margin 3.83% 4.67% 12.72% 12.72% 12.72%
EBITDA 160 242 152 939 1,033
Margin 15.72% 17.94% 5.02% 28.20% 28.20%
Growth 51.25% -37.19% 517.54% 10.00%
Capital Expenditures (96) (68) (46) (31) (34)
% Sales 9.43% 5.04% 1.52% 1.52% 1.52%

4. Projected Note: Links to Cover Page in Purple
2011 2012 2013
$2,492 $2,741 $3,015
10.00% 10.00% 10.00%
1,536 1,690 1,859
10.00% 10.00% 10.00%
4,028 4,430 4,873
955 1,051 1,156
38.33% 38.33% 38.33%
220 242 266
8.82% 8.82% 8.82%
180 198 218
7.24% 7.24% 7.24%
159 175 192
6.38% 6.38% 6.38%
1,514 1,666 1,832
2,513 2,765 3,041
62.40% 62.40% 62.40%
$788 $867 $953
19.56% 19.56% 19.56%
$618 $679 $747
15.33% 15.33% 15.33%
$124 $136 $150
3.07% 3.07% 3.07%
$361 $397 $436
8.96% 8.96% 8.96%
1,890 2,079 2,287
623 686 754
15.48% 15.48% 15.48%
512 564 620
12.72% 12.72% 12.72%
1,136 1,249 1,374
28.20% 28.20% 28.20%
10.00% 10.00% 10.00%
(38) (42) (46)
1.52% 1.52% 1.52%

5. Page 72
WORKING CAPITAL ASSUMPTIONS
Cash Impact of Working Capital
Historical
2007 2008
Working Capital Assets
Accounts Receivable 112 1,210
Inventories 21 262
Software Development & Intellectual Prop Licenses 25 235
% Sales 2% 8%
Other Working Capital Assets 23 201
% Sales 1.70% 6.64%
Working Capital Liabilities
Deferred Revenues 197 923
% COGS 45.18% 50.19%
Accounts Payable 49 555
% COGS 11.24% 30.18%
Accrued Expenses & Other Liabilities 282 842
% COGS 64.68% 45.79%
Ratios
Days Receivable (AR / (Total Sales/365) ) 30.30 145.95
Inventory Turns (Total COGS / Inventory) 20.76 7.02
Working Capital
Working Capital (347) (412)
Change in Working Capital (65)
"Less" Change in Working Capital 65

6. Projected
2009 2010 2011 2012 2013
804 884 972 1,070 1,177
127 139 153 169 185
259 284 313 344 378
8% 8% 8% 8% 8%
221 243 267 294 324
6.64% 6.64% 6.64% 6.64% 6.64%
628 691 760 836 920
50.19% 50.19% 50.19% 50.19% 50.19%
378 415 457 503 553
30.18% 30.18% 30.18% 30.18% 30.18%
573 630 693 763 839
45.79% 45.79% 45.79% 45.79% 45.79%
88.13 88.13 88.13 88.13 88.13
13.89 13.89 13.89 13.89 13.89
(169) (186) (204) (225) (247)
243 (17) (19) (20) (22)
(243) 17 19 20 22

7. VALUATION - DISCOUNTED CASH FLOW METHOD
Historical
2006 2007 2008
Free Cash Flow Calculation
EBITDA 160 242 152
Less: Taxes on EBITDA 69 104 65
Less: Capex (96) (68) (46)
Add: Working Capital Impact - 65 (243)
Unlevered Free Cash Flow $343 $(72)
Discounted Cash Flow
DCF Enterprise Value Calculation
Terminal Value Calculation
Terminal Growth Rate 5.00%
Terminal Enterprise Value 20,431.07
Discounted Terminal Value 14,917.75
Enterprise Value 18,128.93
Enterprise Value Net Debt 18,128.93
Share Price $13.87
Discount Rate (WACC) 8.18% *Company has not utilized debt financing p
Current Price 10.87
Shares Outstanding 1,307
Equity (Market Cap) 14,207
Debt + Equity 14,207
Cost of Equity 8.18%
Equity/Value 100.00%
Cost of Debt 7.08%
Debt 0
Debt/Value 0.00%
Tax Rate -43%
Cost of Equity (CAPM) 8.18%
Risk-Free Rate 4.22%
Beta 0.66
Rm-Rf 6.00%

8. Projected Terminal
2009 2010 2011 2012 2013
0 1 2 3 4 5
939 1,033 1,136 1,249 1,374
404 444 (398) (437) (481)
(31) (34) (38) (42) (46)
17 19 20 22 -
$1,328 $1,461 $721 $793 $847
$1,328 $1,350 $616 $626 $619 $650
y has not utilized debt financing p58