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Here’s What the Market Is Missing With Activision Blizzard’s New “Call of Duty”

By John Ballard – Nov 11, 2018 at 6:00AM

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The game maker's stock price is down even though the Call of Duty franchise is looking up.

Activision Blizzard (ATVI 5.91%) made a big splash in the gaming industry last month with its highly touted release of Call of Duty: Black Ops 4, which has proven to be a big hit with players. The game set an opening day digital sales record on Sony's Playstation store and sold over $500 million in the first three days. The game didn't match previous opening weekend sales numbers in the series, though, which may have contributed to the stock's 10% slide since the company disclosed initial sales.

Regardless of how the market feels about Activision at the moment, there are three signs about Black Ops 4 that point to big money-making potential for the franchise going forward.

Screenshot of Activision's Call of Duty Black Ops 4 game depicting two in-game soldiers standing in an industrial area and firing weapons.


Big upside potential

Even though Activision's share price has trended down in recent weeks along with the broader market sell-off, a few analysts remain very bullish on the game maker's prospects based on strong player engagement with Call of Duty. One analyst at Barclays cited the stronger viewership Black Ops 4 received during launch weekend on game streaming sites compared to Fortnite (the reigning king of battle royale shooters this year). Although Black Ops 4's viewership on Twitch has declined since opening weekend, the game still ranks as one of the top 10 most watched games on the popular game streaming site. 

It's not important whether Black Ops 4 knocks out Fortnite or not. What matters is that Black Ops 4 is tapping into the excitement of battle royale shooters, which is by far the most popular gaming genre right now. So far the game is receiving some of the highest viewership on Twitch that Activision has achieved for any of its recent titles, including Overwatch, which has been the hottest game on the esports scene.

Big esports potential

Black Ops 4's popularity on Twitch speaks to the game's potential as a spectator sport. It's not a coincidence that the most watched games on Twitch are also the most popular esports in the world: League of Legends, Dota 2, Counter-Strike, and Overwatch. These games have a sizable audience, and are paving the way for professional players to be millionaires, according to Goldman Sachs

Here's the significant thing about this for Activision: The company now has a second very popular shooter to turn into a major esport on a scale similar to that of Overwatch League. Overwatch League has already generated about $1 billion by selling teams, sponsorships, and media rights. Activision has already been working on ramping up Call of Duty World League on the esports scene, and the success of Black Ops 4 could accelerate those plans.

The company seems to already be capitalizing on the momentum. On Oct. 23, Activision announced the hiring of Johanna Faries, a veteran NFL executive, to be the head of Call of Duty esports. Faries has over a decade of experience working in several areas, including fan engagement, business development, marketing, partnerships, and consumer products.

Big profit potential

Given the strong interest in Black Ops 4, this version could have a much longer tail of sales than previous versions in the series. Some players may have been waiting to buy the game until they saw it in action, so we could see continued strong sales in the next few quarters.

Additionally, a large audience for this edition of Call of Duty means a bigger player base to drive demand for in-game content -- a key component of Activision's money-making strategy, which made up 56% of total revenue in 2017. Activision has historically made additional money off of Call of Duty by releasing expansion updates to the base game for $14.99. These updates give players extra in-game maps or bonus weapons for the online multi-player modes. 

It's possible management may add other in-game content that players can purchase besides the standard map packs. Fortnite has made over $1 billion from in-game spending alone, and that's all from cosmetic items like character emotes and skins. There's potential for Activision to release similar content for Black Ops 4, which could pad the bottom line significantly for the company, since extra content is all digital and doesn't require the level of investment that making the base game requires.

Activision generated more than $4 billion from sales of extra content last year -- more than sales of new games. If the game's popularity on Twitch is any indication, Black Ops 4 has the potential to be the game maker's most profitable Call of Duty in the company's history. That's something that investors may want to ponder, especially with the stock down 20% over the last month. 

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

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