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The more things change, the more they stay the same. This old proverb could be appropriately applied to Activision-Blizzard (NASDAQ: ATVI ) . The company keeps pumping out hit after hit and 2014 looks like more of the same. With the company now free from Vivendi's control, shareholders have a lot to look forward to this year.
New consoles same old Activision
Activision-Blizzard has a reputation for annual refreshes of its most popular titles. While some gamers might complain about the "Call of Duty" series getting rehashed and reworked so many times, gamers keep buying the titles.
Competitor Electronic Arts (NASDAQ: EA ) sort of wrote the rulebook on updating games with annual releases of games like its "Madden," "FIFA," and "NCAA" games. By comparison, peer Take-Two Interactive Software (NASDAQ: TTWO ) seems to have a different idea by releasing updates to "Grand Theft Auto" only every few years. Take-Two does release its 2K franchises of NBA and WWE titles each year, but is trying to move toward digital games.
The biggest difference between these companies is the first reason 2014 should be a good year for Activision-Blizzard. The company seems to have the best franchises that gamers will be anxious to upgrade their game system to play. A great example is Call of Duty: Ghosts, which was the best-selling game on the PlayStation 4 and the Xbox One consoles at the end of 2013.
In addition, the company's huge titles like Diablo III will be coming to the next generation of consoles, and the massive "Skylanders" franchise is sure to play a big part in the move to the new consoles. Not only does Activision-Blizzard keep pushing the gaming envelope with its existing games, but newer titles this year should continue the company's dominance of the video game landscape.
Online growth = margin expansion
While the Activision side of the house is known for its console games, the Blizzard part is a well-known online gaming company. There are several key releases for Blizzard coming in 2014, which is the second reason this should be a good year for the overall company.
Competitors like Electronic Arts and Take-Two already have significant online hits with games like Madden, FIFA, and NHL Ultimate Team from EA and Grand Theft Auto Online from Take-Two. In addition, EA is getting a boost from the hit on Xbox One Titanfall.
That being said, the king of the online gaming hill is still Activison-Blizzard's World of Warcraft and its 7.8 million members. The company is expanding this game to a card collecting game called Hearthstone: Heroes of Warcraft: Hearthstone is on PC and Mac and is expected to help Activision-Blizzard with releases for iOS and Android.
The reason these online games are important is, they cost far less to support than packaged games. Electronic Arts gets nearly 34% of its revenue from digital sales, which contributes to the company's gross margin of 66%. On the other end of the spectrum, Take-Two needs Grand Theft Auto Online to continue doing well as the company gets just 17% of revenue from digital and carries a much lower gross margin of 45%.
Activision-Blizzard's strong online releases this year should help the company's margins and digital sales catch up to EA. Today the company gets 24% of sales from digital and has a 57% gross margin, but if Diablo III, Hearthstone, and others have anything to say about it, these numbers will rise.
It's the company's Destiny
The third reason 2014 could be a very good year for Activision-Blizzard is the game Destiny that is due to release this summer. The main reason for excitement around Destiny is the fact that the game is being developed by Bungie, the same studio that helped to create the iconic "Halo" franchise.
Destiny offers stunning visuals and a unique take on gaming, offering a persistent world that is constantly evolving and changing. With characters that can be customized in every game type and a studio known for successful multiplayer experiences, Destiny is expected to be the most recent megahit for Activision-Blizzard.
While 2013 was a bit of a tough year for Activision-Blizzard because of difficult prior year comparisons, 2014 is a different story. The company promises updates to its "Call of Duty" and "Skylanders" franchises, and with new online games and the release of Destiny, this year should be very good to investors.
Whether you are a gamer or not, I would suggest adding Activision-Blizzard to your personalized Watchlist today.
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