Image source: Activision Blizzard

With Activision Blizzard (ATVI) stock up 60% over the past year and 248% over five years, it's easy to think that the video game designer and publisher must not have much left in the tank. However, if you look at how Activision is increasing its user base and engagement, it becomes clear that growth opportunities are still bountiful.

Expanding user base and deepening engagement

In its most recent quarter, Activision Blizzard announced 544 million monthly active users (MAU) across Activision, Blizzard, and King. Activision, which includes the Call of Duty franchise, increased its user count 10% to 55 million -- and Call of Duty itself, which was originally developed in 2003, is still not showing signs of slowing down, having achieved a record number of franchise MAUs.

As for Blizzard, its user accounts increased 23% year over year. Hearthstone, a free to play online collectible card video game, has reached 50 million players, and has received an 88 rating on Metacritic. Blizzard's newest offering, Overwatch, received even better ratings, with an impressive score of 91, and had 7 million players just 8 days after its release.

Growing users is great, but the true measure of a game's success is engagement. Video games from Activision and Blizzard are unique among mobile games in that they require longer attention spans. When these games capture their users, however, they can expect more engagement. This approach pays off: including King, Activision's 544 million actives users have spent 42 billion hours playing its games. That equates to roughly the same amount of hours spent on Netflix, and is over four times the amount of time people spend watching American professional sports.

So how does increasing user count translate into revenue and profits? For starters, it means increasing opportunities for gamers to make in-game purchases. Activision Blizzard's first-quarter non-GAAP revenue from in-game content grew 20% year over year to more than $620 million. Call of Duty reached new records for in-game content sales, while Season Pass, which gives Call of Duty players access to expansion packs and extended content, achieved record attach rates.

In-game advertising

Increasing user numbers and engagement is also an opportunity for the company to increase in-game advertising revenue. With the acquisition of King Digital, Activision Blizzard has gained access to 463 million users. According to App Annie, King has had 3 of the top 15 grossing games on U.S. app stores for the last 9 quarters. With access to popular mobile franchises such as Candy Crush, Pet Rescue, and Farm Heroes, Activision Blizzard is hoping to take advantage of a huge revenue opportunity with in-game advertising.

Activision Blizzard has just begun advertising in two of its King games, so it does not expect to see any meaningful impact on revenue this year. However, the potential is there. According to Reuters, some analysts see a $500 million opportunity with in-game advertising, and one analyst from Wedbush Securities believes advertising could be accretive by over $3.00 per share.

While the revenue opportunity for Activision Blizzard appears exciting, the company has to be careful not to alienate its gamers with annoying ads. CEO Bobby Kotick acknowledged this risk in the company's most recent earnings call:

I want to say that first and foremost we are focused on retaining our players and we are focused on providing a great player experience and we will not compromise on this point. That said, given our massive network, we do believe that advertising could be a meaningful revenue stream for King in the long term. We have 463 million monthly active users, and with that it's one of the largest untapped audiences for advertisers in the world.

The ESPN of e-sports

Image Source: Major League Gaming

There is also no denying the growing popularity of e-sports.

You may have heard that stadiums are selling out to watch people play video games -- but what you may not know is that fans religiously tune in to watch it on television as well. Last December, a world championship was held for a game called League of Legends, a game that achieved $1.2 billion in revenue last year.The tournament drew 36 million viewers. To put that in perspective, 31 million fans tuned into game 7 of the NBA Finals between the Golden State Warriors and Cleveland Cavaliers. In fact, of all the major sports championships, only the Super Bowl drew more fans than the League of Legends tournament.

League of Legends isn't an Activision Blizzard game, but its games are extremely popular among players and viewers alike. According to CEO Bobby Kotick, spectators watch over 1.5 billion hours of Activision Blizzard content. Call of DutyDiabloHearthstoneStarcraft, and World of Warcraft are all featured in tournaments across the globe. Activision Blizzard has made a strategic decision to more aggressively pursue the e-sports market, and purchased Major League Gaming (MLG), a top e-sports platform.

Jeff Bezos is another entrepreneurial mind who is sold on the strength of e-sports. After buying e-sports platform Twitch for $1 billion in 2014, Bezos called broadcasting and watching gameplay a "global phenomenon." At $46 million, the price tag for MLG was much lower than that of Twitch.

Its goals, however, are ambitious. Mike Sepso, the lead executive for Activision Blizzard's e-sports division, announced a simple goal for the business, saying the company's mandate is to "build the ESPN of e-sports."

With a slew of blockbusters on its resume, Activision Blizzard has rewarded shareholders handsomely over the past five years. With an increasingly engaged user base, potential for in-game advertising, and the rise in e-sports, the next five years look promising, too.