Video game publisher Activision Blizzard (NASDAQ: ATVI) couldn't have asked for a better beginning to the New Year. Sales of new consoles from Microsoft (MSFT 0.37%) and Sony (SONY 1.10%) have got off to a solid start, while rival Electronic Arts (EA 0.79%) seems to have shot itself in the foot with Battlefield 4.
Activision was wary of how the new console cycle would affect its sales in 2013, but the company seems to have done very well for itself. The latest iteration of its shooter franchise Call of Duty has been very successful, claiming the top spot in November ahead of EA's Battlefield 4 and pushing Take-Two Interactive's Grand Theft Auto V down the rankings.
In fact, Call of Duty: Ghosts surpassed $1 billion in sales to retailers just a day after its launch, bettering Grand Theft Auto V that had taken three days to breach the mark. However, Activision had lowered its outlook for the fourth quarter when it reported results early in November, citing competition from Electronic Arts' Battlefield 4.
When your arch-enemy fails to fire
But now it looks like Activision is probably winning this fight as the Electronic Arts offering was plagued by technical problems. The game crashed, players were unable to save their progress in the single-player campaign, while online-multiplayer was buggy, continuing EA's knack for bungling launches (after the SimCity disaster in March).
What's more, the EA studio that developed Battlefield 4 has been busy patching up the game and has put all other development on hold. According to Fool colleague, Timothy Green, the studio has been forced to suspend development of "Battlefield 4 expansion packs and the upcoming Star Wars Battlefront, in order to deal with the game's problems." This domino effect could be a tailwind for Activision going forward as Electronic Arts might fall behind on the development curve, sending more gamers toward Call of Duty: Ghosts.
Call of Duty: Ghosts is already the top-selling game on both PlayStation 4 and Xbox One and as more gamers buy the new generation consoles going forward, Activision can expect sales to grow further. Moreover, the long-term outlook also looks quite promising.
A promising console cycle
Over a period of around eight years, Sony has sold more than 80 million units of the PS3, while the Xbox 360 has also sold an identical number of units. Thus, both consoles have sold a total of approximately 160 million units during their eight-year-run so far. Looking ahead, analysts are projecting strong sales of both consoles. Sony is projected to sell 49 million units of the PlayStation 4 by the end of 2017, followed by Xbox One at 38 million units. Sales of both these new-gen consoles have topped their predecessors already and this is a huge positive for game publishers.
In addition, Sony expects to sell 10 million units of the PS3 in the current fiscal year that ends in March 2014, which means that Activision should see some tailwinds from the older-generation consoles as well in the near future. Moreover, hardware sales should improve further going forward as Microsoft and Sony engage in a price war. The Xbox One is priced $100 more than the PS4, and this is probably one of the reasons why Microsoft is converting less number of gamers than Sony.
As such, it won't be surprising if Microsoft lowers the price of the Xbox One to spur adoption and compete against the PS4 and benefit game publishers in general. Now, Activision Blizzard is among the top two game publishers globally by revenue, which is why the company is already among the major beneficiaries of the new console cycle and this momentum could continue going forward.
The pipeline
Activision has been making some good moves to strengthen its portfolio of games. The company has introduced Diablo III -- which had sold more than 14 million copies on the PC platform -- for the console. Additionally, Activision is preparing to launch the Reaper of Souls expansion pack for Diablo III in 2014 and this should provide further momentum to sales. Also, Activision hasn't given up on World of Warcraft yet. It released new content for the game in September and management pledged that Activision will continue to "invest heavily" in the game.
Activision will also be launching Hearthstone in 2014. This is a free-to-play digital card game for the PC and iPad, based on the Warcraft universe, and could turn out to be a long-term revenue generator for Activision.
The bottom line
Activision performed quite solidly in a year of transition and things should get better from here. The company's latest game is ruling the charts and the pipeline is also looking good. All in all, Activision Blizzard has the potential of becoming one of the top video game stocks in 2014.
