Please ensure Javascript is enabled for purposes of website accessibility

Where Will Activision Blizzard Be in 5 Years?

By Brett Schafer - Updated Jan 26, 2021 at 7:38AM

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

The gaming conglomerate has multiple avenues to increase profits.

Activision Blizzard (ATVI) is one of the best-performing stocks of the last two decades. Up over 7,000% since 2000, the video game conglomerate has crushed the S&P 500, which has returned around 169% in the same time period. With its Triple-A console and PC titles, it has been able to consistently increase profits due to the staying power of franchises like Call of Duty and World of Warcraft. But with new gaming paradigms on the horizon like virtual reality (VR), esports , and the continued rise of mobile gaming, Activision will need to evolve in order to keep up with the times.

Here's what the business could look like five years from now.

Young man holding a console controller while playing a game.

Image source: Getty Images.

What will be different

Over the last two years, the two big shifts in gaming have been the growth in mobile (mainly smartphone games) and the free-to-play battle royale concepts like Fortnite. Growth in these categories should continue, and Activision is preparing to adapt its business accordingly. In the past, the only way a gamer could access Call of Duty was to buy a $60 game for their console or PC. Now, with Call of Duty Mobile and Warzone (the Fortnite-like battle royale game) available as free options, the company has created a three-pillared strategy, allowing gamers to choose how they want to interact with the franchise. So far, both titles have been roaring successes. Mobile hit 100 million downloads within 20 days of launching, and Warzone had an estimated 75 million players this summer. 

Management is calling this its "franchise-based strategy" and hopes to apply it to all of its games. If they execute, five years from now, titles like Hearthstone, Diablo, and Overwatch could have much larger user numbers.

On the esports front, Activision Blizzard is working to build out professional leagues for each of its franchises as another pillar to increase engagement with users. These are similar to professional sports leagues, with teams and owners and players, but instead of playing a sport, teams compete by playing each other in video games. For example, the Call of Duty league has 12 teams that compete for $6 million in prize money each year. The company makes money through sponsorships, ticket sales, and broadcasting rights. It is a tiny part of the business right now, but by 2025, esports is expected to become a $2.7 billion industry.

Lastly, with VR, investors might be worried about a platform shift from consoles to immersive goggles like the Oculus, which is owned by Facebook, and how that could impact Activision's user base. However, as long as Activision can transition its games to work seamlessly on VR goggles, these new interfaces should be accretive to the company's overall business.

What will stay the same

You can be confident that five years from now people will still want to interact with all of Activision Blizzard's top franchises. They've consistently stayed at the top of the charts for the last two decades, so you have to ask yourself why the next five years would be any different. Gamers will still want to play first-person shooter titles like Call of Duty and immerse themselves in role-playing games like World of Warcraft.

The company's dividend also looks safe. Its current dividend yield is only 0.51% and the payout per share has increased every year since 2010.

But is the stock a buy?

Over the 12 months ending in September 2020, Activision generated around $2 billion in operating cash flow, a number that hasn't changed much over the last few years. With a market cap of $73 billion, the stock now trades at around 36.5 times its trailing cash flow, an expensive multiple for a fairly mature company. However, if management is able to execute on its mobile, free-to-play, and esports initiatives, there are a lot of monetization levers the company can pull over the next five years. Activision Blizzard doesn't look like a screaming buy, but there's no reason to fret about owning shares here, even at a premium valuation.

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, Inc. Stock Quote
Activision, Inc.
ATVI

*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 service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

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.