Activision Blizzard: Console Sales and Smart Strategies Are Long-Term Drivers

Activision is off to a good start and a variety of factors should lead to long-term outperformance.

Mar 31, 2014 at 11:00PM

Activision Blizzard's (NASDAQ:ATVI) performance as an independent company has been outstanding, so far. Its buyout of Vivendi resulted in significant earnings accretion and gave Activision more freedom to develop better games and compete against the likes of Electronic Arts (NASDAQ:EA). What stands out is the fact that Activision's shares have gained 20% since Vivendi's exit. With new console sales coming in above expectations, Activision could do better in the future.

Industry leading position
Activision's Call of Duty: Ghosts was the No. 1 game across all platforms and the No. 1 next-generation game on PS4 and Xbox in North America and Europe last quarter. In addition, Skylanders was once again the best-selling children's franchise, including toys and accessories sold in North America and Europe.

Blizzard Entertainment's StarCraft II: Heart of the Swarm was the No. 1 PC title in North America in 2013. After the record-breaking success of Diablo III on PC, it was the first Blizzard game to come to console in more than a decade when it launched on the Xbox 360 and PS3 in 2013. Diablo III ended the year with over 15 million units  sold cumulatively across all platforms, and the launch of the Diablo III PC expansion pack this month could bring more gamers into Activision's fold.

Console boost
The next-generation consoles have been successful as Sony's PlayStation 4 and Microsoft's Xbox One have hit 10 million units in combined sales. This has set up third-party game publishers for a grand slam 2014, and Activision Blizzard has many tailwinds going forward. The new console generation delivers faster processing and better graphics, increasing gamer interest.

It also brings improvements to online gaming capabilities such as same-day downloads, improved social features, and new opportunities for potentially higher-margin business models like the sale of virtual items and downloadable content. As a result, Activision can see more revenue in the future due to these new features.

Looking ahead, new consoles should be catalysts for revenue growth and margin expansion. The growth in the consoles' install base over the next few years will also give Activision good opportunity to capitalize on a rapidly expanding gaming population, along with broader international penetration.

Game pipeline and strategies
Activision's free-to-play games, including Hearthstone: Heroes of Warcraft, Blizzard's Heroes of the Storm, and Call of Duty Online are designed to appeal to players across numerous platforms and geographies. These investments are expected to result in solid returns as players progress through stages and buy items.

Activision is also pushing into the freemium game segment. Blizzard has announced that Hearthstone: Heroes of Warcraft, its free-to-play digital card game, is now officially out of beta and fully released. Although Hearthstone doesn't require any upfront payment to get started, it demands small payments from users who want to speed up their progress.

Activision will also be launching Heroes of the Storm, which brings together the iconic characters from Activision's three famous franchises: StarCraft, Diablo, and Warcraft. The game has huge potential and resembles Riot Games' League of Legends, which had 27 million daily active players.  

Activision is also extremely confident about Destiny, which is due to be launched in September.  Bobby Kotick, Activision's chief executive, claimed that Destiny will be the "best-selling new video game IP in history" and will definitely hit the billion-dollar mark in sales. Destiny will compete against Electronic Arts' Titanfall. However, since Titanfall is exclusive to Microsoft's platforms, Destiny already has a competitive advantage due to its cross-platform presence.

Activision might not enjoy this advantage for long, however, since Electronic Arts isn't going to keep the Titanfall sequel exclusive to Microsoft's platform. Titanfall's developing studio, Respawn Entertainment, had aims of developing games for the PS4 as well. So, Electronic Arts, the game's publisher, will have a wider audience next time.

Bottom line
Activision is carrying good momentum into the future, helped by new consoles and new games. It is increasing its penetration with strategies like free-to-play games and more blockbuster franchises, which makes it a good long-term option to benefit from the gaming industry.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers