Will the New Expansion Boost Activision Blizzard's World of Warcraft?

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Activision Blizzard (NASDAQ: ATVI  ) used its BlizzCon convention in early November to announce the new expansion for its massively multiplayer online role-playing game World of Warcraft. The Warlords of Draenor expansion pack offers some features that could help woo back former players and stem recent subscriber losses.   

World of Warcraft was first released in 2004 and has since grown through a number of expansions. The most recent expansion proved unpopular, however, and sped up the quarterly loss of subscribers. Activision has high hopes for Warlords of Draenor, though.

Could the expansion breathe fresh life into World of Warcraft?   

Source: Activision Blizzard

Stemming subscriber losses 
The structure of World of Warcraft requires players to first buy the game and then maintain a monthly membership subscription in order to play. The number of subscribers has been on the decline for the past couple of years, but the speed of the decline increased after the relative unpopularity of the Mists of Pandaria expansion that was released in September 2012. Players didn't take to what essentially amounted to action pandas. The new expansion pack has a better chance of wooing back former players. 

New features target old players 
World of Warcraft players complete quests and learn skills to level up the characters they create. There's always a maximum level that characters can reach, but it tends to get bumped up with each new expansion pack. Higher levels provide players with more features.  

Warlords of Draenor raises the upper limit to level 100. The expansion also allows players to immediately level up one character to level 90, which opens up the new features without having to replay through large parts of the prior game.   

The expansion has a number of other features -- most of which only make sense if you've spent countless hours running around pretending to be a Blood Elf Warrior. I would never do such a thing, of course... I'm a Draenei Mage. Regardless, the general idea is that World of Warcraft really wants to win back players with a broad range of in-game incentives. 

So what does the potential success of the new expansion pack mean to Activision Blizzard's business? 

WoW dependence 
World of Warcraft accounted for 61% of Blizzard's total net revenues last year and 90% of its revenues in 2011. Over 80% of net revenues last year came from the company's four largest franchises: World of Warcraft, Diablo, Skylander, and Call of Duty. A sharp loss in popularity for any one of those franchises would hit Activision Blizzard where it hurts. 

The "Call of Duty" franchise is at the forefront in the press at the moment. Call of Duty: Ghosts recently had strong launch sales. Activision Blizzard framed Ghosts' first day sales in the most favorable metric to better pit the game against Take Two's (NASDAQ: TTWO  ) record-breaking Grand Theft Auto V. According to VGChartz, COD: Ghosts has sold nearly 11 million units worldwide since its release last month. GTA V has sold nearly 26 million units but released two months earlier.

The launch sales of games like Call of Duty: Ghosts earn a lot of press attention because the franchise is wildly popular and new games don't come along every year. Because of this, gamers tend to rush out and purchase these new titles which in turn creates an initial wave of unit sales. 

World of Warcraft's structuring makes for a different animal. The base game always exists and keeps generating a paying user base through subscriptions. The new expansion could inspire former players to return and bring in new players, but the sales results won't spike as much as they did for Call of Duty: Ghosts.

The number to watch is the number of subscribers the first full period after the release of Warlords of Draenor. World of Warcraft had 11.4 million subscribers at the beginning of 2011, but that number had fallen to 7.6 million by the third quarter of this year. Activision Blizzard would have a real problem if subscribers dropped another 30% in the next two years. 

Activision's general health
Activision Blizzard shares are up over 64% in the past year. Third quarter revenues of $691 million beat analyst estimates as did the reported EPS of $0.05. 

Activision's console competitor Electronic Arts (NASDAQ: EA  ) recently reported second quarter revenues of $1 billion and EPS of $0.33 and both numbers beat analyst estimates.  Electronic Arts shares are up over 53% in the past year. The company has a broader scope than Activision with a strengthening presence in social gaming and casual PC games via the PopCap acquisition in 2011. EA's also less dependent on the success of a small number of core franchises. 

Foolish final thoughts 
Activision Blizzard has an overreliance on its main franchises. While Call of Duty: Ghosts battles Grand Theft Auto V in sales, World of Warcraft faces a secular decline in its subscriber count. Time will tell if the new expansion proves more popular than the last but Foolish investors should take a cautious stance. As always, investors should do their own research before making any investment decisions. 

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Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2013, at 10:15 PM, yeshu wrote:

    The question is : What Will Reckful Do?

  • Report this Comment On December 11, 2013, at 11:16 PM, harborgal1967 wrote:

    Sorry but no it wont bring people back. If anything it will frustrate longtime users even more. Allowing automatic level progression means a bunch of new people moving up without learning their characters skills. That has been a major complaint because of the dumbing down of the game. What used to take months to do and give a feeling of accomplishment can now be done in days or in some cases hours. The entire goal now is end game content. The problem with that is by bypassing the need to level up you no longer need to have the skills needed and you end up playing with a bunch or unskilled players with attitudes. Gone are the days of teamwork. Its now a feeling of entitlement. I started playing the day the game came out and stopped after trying the last expansion. I wont be back. I will not pay 14.99 to play a game with a bunch or rude obnoxious people. I can find those in any game. And not have to PAY for the privilege......

  • Report this Comment On December 11, 2013, at 11:53 PM, SylkFlame wrote:

    I will get it just because I enjoy the game but I agree with the Previous comment. Instant leveling is wrong. I worked hard (okay not physically hard) but I still put the time and effort learning my toon and becoming good with her and here people instantly get to be lvl 90. I understand why they did it but its bothersome. The new people wont learn how to use there characters so doing dungeons and battlegrounds which are already horrible are going to get worse. People seems to be out for themselves and if you aren't up to par instead of offering help and guidance they are rude. I will be a wow player for life but doesn't mean I like where they are taking this to. Pandaria was bad. Too NPC movement. Lots of lag most the time. I have a brand new computer.

  • Report this Comment On December 12, 2013, at 1:49 AM, boldog03 wrote:

    There is one major change that killed the game for me, raid finder people no longer have to be social and protect their reputations , gone are the days of making friends to progress. The only thing that will save it is no more LFR or dumbed down content also leveling to 100 screw that.

  • Report this Comment On December 12, 2013, at 5:31 AM, lordraptor1 wrote:

    no a new expansion wont help, wow is long in the tooth and as others have commented it has flaws, I personally have 11 toons on my server and finally have all but 2 at lvl 90. I personally don't want to have to start again gaining levels on toons I already have which I will then need to also finish leveling the other 2 toons, then compounded to this is that is one server, I also have 11 toons on a different server ( one is all ally toons the other is all horde toons) and only 2 of my horde toons are 90.

    people are leaving in droves due to game being old, loss of interest and that 15.00 a month to play it ( might as well just get ps+ or XBLG and play on a console for your online gaming).

    I think a lot of players will stay away from wow unless it goes FTP ( free to play) because lets face it is an old game regardless of expansion you still have to start every toon from lvl 1 and it takes time and will put a dent in your pocket if you cant play it constantly, example you pay 15.00 and only get to play say on the weekends and then you cant play a long time due to family, or other reasons so you really don't get your monies worth and when you factor in grinding rep with factions the game gets tiring fast.

  • Report this Comment On December 12, 2013, at 9:47 AM, tjgoldstein wrote:

    It won't get me back into the game.I left because of two things; the Kung Fu Panda expansion and the fact that my cat could face roll the keyboard and pretty much solo a boss in a 25 man raid.

    After playing for 4-5 nights a week, 6 hours at a time minimum, I just lost interest in a game that constantly dumbed itself down for new players.

  • Report this Comment On December 12, 2013, at 1:44 PM, Vitabrits wrote:

    The problem is "The Fool", is that anyone that has wanted to play this game has already and most of those people don't want to go back to it. I myself played for 6 years and unless Blizzard paid me to play, I wouldn't again.

  • Report this Comment On December 12, 2013, at 7:33 PM, Bunnyking77 wrote:

    I'm all good off of WOW. The last two expansions were very horrible. They've run out of interesting content.

  • Report this Comment On December 16, 2013, at 4:51 PM, factchecker1 wrote:

    lol its funny how every expansion people come to every chat box on every site with the expansion as the topic and talk about how horrible the game is and how bad the "kung fu panda" xpac was seriously people grow up no one cares if you hate the game play something else and move on.

  • Report this Comment On December 16, 2013, at 4:54 PM, factchecker1 wrote:

    and FYI pandarens were in wow long before tha stupid movie learn your history :-/

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