The year 2014 is set to be a big one for Activision Blizzard (NASDAQ: ATVI). After gaining its independence from Vivendi by issuing $4.75 billion in debt and utilizing a portion of its sizable cash position, Activision has a new structure and more strategic flexibility. The company also has a strong pipeline, including the release of Destiny later this year.
Activision's history of strong franchises
For many video game publishers, a successful title might be followed up by a sequel or two. However, Activision's secret to its success relative to its competitors is the tremendous staying power of its major gaming franchises. For example, World of Warcraft, Activision's massive multiplayer online role playing game (MMORPG) based on the Warcraft franchise developed by Blizzard in 1994, is getting ready to celebrate its 10th anniversary later this year. While paying subscribers to World of Warcraft have declined in recent years, there are still 7.6 million paying subscribers to the 10 year old franchise that is based on a 20 year old game.
In addition to successes like World of Warcraft, Activision's Call of Duty franchise has garnered an even larger following. The game franchise has sold over 180 million copies while also providing recurring subscription revenue through Call of Duty Elite memberships. With over 15 million copies of last year's release of Call of Duty:Ghosts, this success appears far from over.
Destiny will be a huge success
When Activision teamed up with Bungie, the creators of the Halo franchise, to develop a new "shared world" shooter, the expectations were tremendous. After all, the Halo franchise sold almost 60 million copies despite being limited to Xbox and PC platforms.
While Destiny isn't scheduled to be released until September 2014, it already occupies the first, third, and 18th spots on the list of top preorders in the United States. To put this in perspective, Destiny's pre-orders for Xbox One are comparable to those of Electronic Arts' (EA 0.32%) Titanfall, a highly anticipated shooter that is due for release a full six months before Destiny. Based on the footage released by Activision, it is easy to see why Destiny has generated excitement so far in advance of its release:
Source: DestinyTheGame.com, via YouTube.
Every indication points to the first release in the Destiny franchise selling well over 10 million copies. If Activision's history is any indication, the release of Destiny will be followed by a series of sequels, expansion packs, and other content that will keep gamers engaged for years to come. The company has proven that it can keep franchises like World of Warcraft and Call of Duty popular (and profitable) for a decade or more. Adding Destiny to this mix will provide yet another reliable revenue stream for the company.
Activision focuses on quality over quantity
Increasingly, Activision has focused years of development efforts to make a few games truly great. The effect of this unparalleled focus on quality has been a huge disparity in performance of the company's stock over rivals like EA and Take Two Interactive (TTWO 1.59%) over the past decade.
ATVI Total Return Price data by YCharts
While a focus on quality and avoidance of issues like those that have plagued EA's Battlefield 4 release has been a major factor behind the divergence of Activision from its peers, Activision's results are heavily influenced by a limited number of franchises. A sudden decline in the popularity of World of Warcraft, Call of Duty, or Skylanders would have a tremendous impact on Activision. This concentration of risk is another reason that the addition of Destiny to the mix will be particularly important to the company going forward.
Just in time for the console transition
The transition to the next generation Microsoft Xbox One and Sony PlayStation 4 platforms is just starting to take hold. As a result, Activision's release of Destiny in time for the first full holiday season these next-generation systems will be on the market is timed perfectly to maximize the immediate demand for the game. Expect the convergence of this new blockbuster and the rise in sales of next-generation systems to result in some impressive results for Activision later this year. All in all, signs point to Activision continuing its streak of exceeding earnings expectations and rewarding shareholders along the way.
