Shares of video game publisher Activision Blizzard ( ATVI 0.12% ) have fallen 35% from a high of $85 per share. Reporting the recent second-quarter revenue of $1.4 billion over the estimated $1.32 billion and earnings per share of $0.53 over an estimated $0.35, shares have yet to rebound on strong financials. Concern that the lack of product diversity will stifle growth in an expanding market, investors aren't convinced that Activision is headed in the right direction. Relying on a few products is risky but there are hidden opportunities that have yet to blossom.
There is a new gaming experience in town, one that is played in stadiums around the world. Esports aren't that different than traditional sports such as football and basketball, as they involve sponsorships, fees, and advertising revenue and require considerable effort to create a sporting experience for the teams playing and the audience watching.
Activision's Overwatch League esports venture, a multiplayer first-person shooter game that involves 20 teams around the world, sold out in its February 2019 opening. With a total reach of 13 million and an average of 440,000 viewers on average, this is no small platform. Open to more than 190 countries in six languages, the esports platform is the future of gaming, and Activision is serious about being a leader in this space.
Newzoo predicts that esports' annual growth will be 14% on average, with a casual viewer base of 307 million and an esports enthusiast base of 250 million, totaling 557 million by 2021. In 2018, Newzoo reported the top most-watched games through Twitch, a live gaming streaming service. It just so happens that five of the 25 games were owned by Activision, with Hearthstone and Overwatch taking fourth and fifth places, respectively. Total hours watched for Hearthstone were 364.1 million and for Overwatch 213.3 million in 2018.
The new launch of esports could spark additional enthusiasm for viewers, as there is potential to be a professional gamer chasing millions of dollars in prize money. In 2018, Activision reported that 8% of its revenues were driven from Major League Gaming and the Overwatch League, which can grow exponentially into the future.
A mobile gem
Mobile gaming is growing above other gaming platforms such as PC and home game consoles by 10% per year per a 2018 TechCrunch report. Activision reported 2018 revenue of $7.5 billion, with 29% of that revenue from mobile gaming. Activision sees the opportunity in mobile gaming and decided to take one of the most popular games, Call of Duty, and launching a mobile version. This is a game-changer for Activision -- literally.
Launching Call of Duty: Mobile on Oct. 1, 2019 in the United States on both iOS and Android, the game is projected to be a hit with gamers per Digital Trends. A free download will allow gamers to access features like Fortnite, a massively popular game by Epic Games that has directly impacted investor sentiment in Activision Blizzard. A major stakeholder in Activision, Chinese video game publisher Tencent (OTC: TCEHY), is developing Call of Duty: Mobile and launching the No. 1 console video game to millions of gamers in China -- with a reported 60 million gamers pre-registered in China in September.
Investors have been focusing on a lack of new products within Activision Blizzard's product suite as a negative for the company, but the company is pointed in the right direction. By using the current product lineup and evolving into esports and mobile gaming, the company has the potential to expand rapidly. With cash on hand of $4.5 billion as of the recent quarter, Activision might surprise investors with a few acquisitions to spark growth.
Discounting Activision Blizzard at this point would be a mistake. The company is consistently beating on revenue and earnings per share, showing that it can compete with a thin portfolio of winners across several gaming platforms, evolving with the market. Activision's current position is a strength, not a weakness.