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Activision Blizzard (NASDAQ: ATVI ) is under attack.
Yes, the video-game company reported surprisingly strong sales and revenue for the first three months of the year. It even raised its full-year guidance on both counts. But shares still fell by more than 6% after management warned that the holiday season could be "more challenging than our earlier view."
Activision does have plenty to worry about. Starting in the fall, it will have to fend off major challenges against two of its tentpole franchises.
The attack: First up will be a huge fight with Disney (NYSE: DIS ) . The House of Mouse is cannonballing into the market that Activision created with its Skylanders console franchise. Disney will launch its competing title, Infinity, in August, and the stakes couldn't be higher. Helped along by toy sales that complement the gameplay, Skylanders has been the best-selling game in North America and Europe so far this year. Disney is aiming to grab some of that coin and is ready to turn the full force of its marketing machine to the task.
The defense: But Activision isn't standing still. The company has a new installment of the Skylanders franchise lined up with an innovative twist that allows gamers to customize their toys for more varied gameplay. And while Activision doesn't have the deep catalog of characters that Disney boasts, it does have an established franchise and plenty of shelf space at retailers already locked in and ready for the fight.
Ghost in the machine
The attack: Next up will be the holiday slugfest against Electronic Arts (NASDAQ: EA ) . EA is timing the release of Battlefield 4 to go head-to-head with Activision's Call of Duty launch this year. The previous installment of Battlefield sold a quick 10 million copies, so it should make for some very tough competition against Activision's biggest brand.
The defense: Still, Activision is hoping that a fresh take on the Call of Duty franchise will keep it on top. Call of Duty: Ghosts takes the series in an entirely new direction, with new characters and an all-new story. And its launch will also be backed up by "one of the largest sales and marketing plans in the brand's history."
Expect that trend to hold back profits for the company in general this year. All this extra competition means that Activision will have to spend much more on marketing to support its games. And that means it probably won't repeat the record profitability it enjoyed last year.
However, Activision can't afford to let rivals gain too much ground heading into the new console introductions from Sony and Microsoft. It has a dominant market position as this console cycle is coming to an end, but Activision will have to fight to keep it that way through the next-generation releases.
While Activision and Microsoft have been taking the headlines when it comes to console gaming, investors following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. The Motley Fool's special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now.