Please ensure Javascript is enabled for purposes of website accessibility

Here's What's Driving Activision Blizzard's Results

By John Ballard - Jul 10, 2017 at 7:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite a lack of new content releases in the first quarter, the game maker is producing strong financial results.

Activision Blizzard (ATVI 0.35%) has a simple business strategy: Create high-quality content that attracts millions of players, then sell those players in-game content that generates a recurring stream of revenue. Rinse and repeat. 

This strategy worked beautifully in 2016, as high player engagement drove a 126% increase in in-game revenue. With a lighter game release schedule in 2017, the company will be relying on player engagement even more to drive full-year results. This shouldn't be a problem, as Overwatch is enjoying strong momentum, and Call of Duty fans continue to stay engaged with older versions of the game despite poor sales of the latest release.

"Overwatch" title written in gray against white background with in-game characters standing below it.

Overwatch's player registrations have grown to 30 million in its first year since launch. Image source: Activision Blizzard. 

Activision has better player engagement opportunities than ever before

Activision Blizzard COO Thomas Tippl said on the first-quarter earnings conference call that the company now has "better player engagement opportunities than we've ever had with our catalog games." This is one reason why, despite weak sales of 2016's Call of Duty: Infinite Warfare (released in the fourth quarter), the company was still able to post solid financial results. Players who were disappointed with the new version spent more time with previous versions of the game. 

Poor sales of Infinite Warfare did carry over to the first quarter, as the Activision side of the company experienced a decline in monthly active users from 51 million in the fourth quarter to 48 million. This caused Activision Publishing's in-game year-over-year revenue to be lower during the first quarter. Still, the point remains that Infinite Warfare's poor performance could have wrecked the quarter if the company didn't have an engaged player base with older versions of the franchise.

Call of Duty fans have remained very active with previous titles, such as Modern Warfare Remastered and Black Ops III, which helped the company partially offset weak new game sales. The next iteration of the game, Call of Duty: World War II, is expected to return the franchise to growth, given early interest in the game and pre-order trends. 

In the meantime, Activision continues to support older Call of Duty titles with in-game content releases. The game maker just recently released a new piece of in-game content for Call of Duty: Black Ops III called Zombies Chronicles. This is the biggest piece of in-game content Activision has released in the second year following a new Call of Duty release. Zombies Chronicles was released on May 16, 2017, and so far is getting great reviews from gamers. 

Management's outlook for 2017 calls for earnings per share to drop to $1.80, compared to last years $2.18, as the only two new game releases for the year will be Call of Duty: World War II and Destiny 2, and both are debuting late in the year. With poor sales of one of the company's best-selling franchises and only two new games releasing in 2017, you would think earnings would be much further off 2016 figures. It's not only a testament to the company's strong portfolio of content, but also some big home runs being scored by Blizzard.

Blizzard posting impressive results without new content

The maker of World of Warcraft, Overwatch, and Hearthstone had 41 million monthly active users in the first quarter, an increase of 58% year over year. Continued strong player engagement in Overwatch and World of Warcraft led to Blizzard segment revenue increasing 50% in the first quarter to $441 million and operating income doubling to $166 million. This is really impressive performance given that there were no new game releases from Blizzard in the quarter.

Four Overwatch characters posing in Santa Claus and elf outfits in a winter wonderland theme.

Overwatch's seasonal themes are one tool Activision Blizzard has to drive engagement among the player community. Image source: Activision Blizzard. 

Overwatch has been Blizzard's fastest-growing new game in history, and gained an additional 5 million registered players in the quarter, bringing the total player base to 30 million. Additionally, Blizzard's digital card game, Hearthstone, has 70 million registered players, and (along with Overwatch) is one of the most streamed games on's popular game-streaming site, Hearthstone also had growth in monthly active users during the quarter despite no new content released for the game. 

What to expect for 2017 

Activision Blizzard finished 2016 with 54% of its total revenue coming from in-game content, making the company far less dependent on new game releases. Overwatch is still growing its player base, and the highly anticipated releases of Call of Duty: World War II and Destiny 2, on top of the existing 431 million monthly active users across the game catalog, puts Activision in a good position to grow in-game revenue in 2017 and beyond. 

John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Activision Blizzard, Inc. Stock Quote
Activision Blizzard, Inc.
$80.79 (0.35%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.