Activision Blizzard (NASDAQ:ATVI) stock lost nearly half its value in 2018, but shares are up 18% year to date in 2019, and there could be more gains in store. Analysts are changing their tune on the shares, and a few Wall Streeters have recently released bullish reports. 

The company's new player-engagement strategy is starting to bear fruit. Earlier this year, management announced a major turnaround effort that included cutting staff by 20% and investing in the most profitable franchises in order to release fresh content more frequently to keep players engaged. The last few quarters have shown improvement, with new content stimulating player engagement across several franchises, including Call of Duty and World of Warcraft

While the progress is good news, investors seem more excited about what's still to come. New content and potentially new games are expected to be announced in the coming months. Last year was a setback, but CEO Bobby Kotick stated during the second-quarter conference call that the company is just "scratching the surface" of its long-term potential to grow revenue through reaching more players and increasing engagement and in-game spending. 

A stock chart with an orange line moving down, then spiking back up.

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Activision Blizzard is just starting to see results from the latest content drops, and there's much more content coming that could propel the stock to new highs over the next few years. Analysts expect Activision Blizzard to grow adjusted earnings by 15% next year, which is why it would be a mistake for investors to sell the stock just as the company is starting to recover.

Core games performing well

The summer has seen new content releases for three big franchises -- Call of Duty, World of Warcraft, and Overwatch. The new content contributed to strong performance last quarter from Call of Duty: Black Ops 4, which experienced a 50% increase in hours played versus the previous title in the series.

One analyst expects the upcoming Call of Duty: Modern Warfare, which is scheduled to be released in November, to sell as many as 24 million copies and be the top-selling game of the year. Also, Call of Duty Mobile is set to be released on Oct. 1, as the company sees an opportunity to capture more revenue from the $68 billion mobile-game market.

World of Warcraft (WoW) Classic just launched in August, allowing players to experience the game in its original state as it was in 2004. More than 100 million players have played the game over the years, but the player base has dramatically declined over the last decade. However, Blizzard has experienced an increase in new subscribers since mid-May, when the beta version was released for WoW Classic.

The momentum with respect to World of Warcraft could carry over into 2020. An analyst with Cowen believes a new expansion for the franchise could be announced at BlizzCon this November, which would certainly keep players feeling positive about the state of the game, leading to higher player retention. 

Something is happening with Overwatch

Overwatch has seen a semi-overhaul over the summer, with substantial new features released that have received a positive response from the player base. The game launched in 2016 and reached a peak player base of 40 million, and that could increase through the holidays with Overwatch launching on Nintendo Switch, which has an installed base of 37 million units.

While new content is important for the health of the game, that's not what has investors excited. Earlier this year, a bombshell report was dropped by Kotaku explaining that Blizzard had canceled a project for a new StarCraft first-person shooter to work on a new Diablo game for PC and on "Overwatch 2.

Gamers and analysts are anticipating a new Diablo game to be announced at some point, but the Overwatch news is interesting. No one knows what "Overwatch 2" really means. It's either a significant expansion to the existing game or a brand new sequel. The latter is unlikely because Overwatch is a competitive multiplayer shooter in which players compete against others to earn a skill rating in the game. Players have spent more than three years building up their skills and stats that Blizzard uses internally to match them with other players of the same skill level.

If Blizzard were to start over with a sequel, it could be very disruptive to the player experience, not to mention the impact it would have on Overwatch League, in which the most talented players would have to basically relearn the game in time for season 3. The so-called "sequel" to Overwatch is more likely a substantial content expansion update to the base game, like Blizzard releases for World of Warcraft every few years.

Either way, there's massive potential for Overwatch to generate much more revenue than it is currently. The reason players still play World of Warcraft after 15 years is because of the community and all the stuff there is to do in the game. Overwatch currently has a roster of 31 in-game characters, each with a unique background story. It's the closest thing Activision Blizzard has to its own Marvel cinematic universe, and Blizzard is constantly adding new characters to the game. 

A major expansion for Overwatch that builds on the lore behind the characters, which could be what "Overwatch 2" is, could dramatically stimulate in-game spending and revitalize a franchise that has been stagnant over the last year. Whether Blizzard announces something like this or not in the short term, investors should keep their eye on what happens with Overwatch, because it has tremendous potential for monetization across TV, film, consumer products, esports, and new game sales.

The bottom line

Last year, Activision Blizzard fell victim to what typically gets growth stocks in trouble -- which is that the stock gets so richly valued that any misstep can cause the share price to crater. But the company is clearly getting back on track with all the new developments happening right now.

The stock is just starting to recover from last year's fall, but with new games and content on the horizon, I would hang on to the shares.