Why Activision Blizzard, Inc. Shares Are Leaping

A look behind the game publisher's blockbuster first-quarter results.

May 7, 2014 at 12:30PM

There was plenty for investors to like about the earnings results that Activision Blizzard (NASDAQ:ATVI) just posted. Let's start with the big picture: Profit came in ahead of expectations, setting a new quarterly record of $0.19 a share. Sales also surprised to the upside at $772 million -- 14% ahead of the game publisher's prior forecast.

Hearthstone Logo

Source: Activision Blizzard.

The company can thank three Blizzard franchises for that outperformance: World of Warcraft and Diablo titles sold well, and a brand-new free-to-play game, Hearthstone: Heroes of Warcraft, made a quick contribution by attracting 10 million registered players. That trifecta led to a surge in digital sales, up to a record 68% of revenue. Because online sales tend to pack a bigger profit punch, Activision was able to set a new Q1 record for operating margin at 31.1%.

But investing is about the future, not the past, and that's what should have shareholders really excited. 

Warcraft has still got it
To start with, Activision's aging World of Warcraft franchise has at least one more hit left in its tank. Fresh WoW content is due to hit shelves later this year, and it's already one of the fastest-selling expansions in franchise history, the company says, with over 1 million pre-sales booked to date. 

Yes, Warcraft's subscriber base shrunk again this quarter, dipping to 7.6 million from 7.8 million three months ago. But that's to be expected as we approach a new expansion. The brand is anything but dead. In fact, Activision just expanded WoW's development team with the aim of raising content quality and delivering new content to subscribers at an even quicker pace. 

Two games, seven years in the making  
Call of Duty is also set to keep dominating despite its age. The franchise led all brands as the top seller on the Xbox 360 and PS3 consoles. And the latest chapter, Ghosts, has so far kept that streak alive as the best-selling title on both the Xbox One and PS4 devices. 


Source: Activision Blizzard.

This year's installment could do even better. Advanced Warfare is the first Call of Duty title yet to benefit from three years of development, which should allow for more bold innovations and a much higher level of polish. At the very least, it won't have the type of buggy launch that has plagued other recent launches. Gamers -- and investors -- can look forward to new details on this title coming out at next month's E3 conference.

Activision's portfolio isn't relying on just established franchises, though. In addition to Hearthstone, the company is rolling the dice on a massive new property. Destiny has been in development for four years and is on track to be the biggest launch of a new franchise in history when it's released in early September. 

A temporary squeeze
Activision's second-quarter results should be hurt by the timing of that launch. The company plans to spend lots of cash to support Destiny's debut, which is a big reason why profits are expected to plummet to $0.01 a share from the $0.22 the company booked in last year's Q2. Still, that investment should be well worth it considering that Activision has plans for the franchise that stretch out into the next decade.

More amazing technology
Activision's Hearthstone is dominating the download charts on Apple's iPad. And if you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool recommends and 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information