Activision Blizzard (NASDAQ:ATVI) just crossed $8 billion in annual revenue for the first time in company history. But after posting revenue growth of 25% last year, the company will face difficult year-over-year growth comparisons in 2021. Early full-year guidance calls for a very small increase in revenue. 

During the fourth-quarter conference call last week, management shared its thoughts about business trends during the pandemic. While management credited the pandemic for driving an initial spike in engagement, they talked mostly about execution for driving growth last year. The evidence suggests they are right.

A screenshot of five characters from Activision's Call of Duty Black Ops Cold War.

Image source: Activision Blizzard.

Retracing a record year 

A quick review of Activision Blizzard's monthly active users totals over the last year reveals that the stay-at-home dynamic wasn't the only reason for the company's stellar performance. Activision Blizzard entered 2020 already poised for a big year from its Call of Duty franchise.

After the launch of Call of Duty Mobile in October 2019, monthly active users in the Activision segment jumped from 36 million in the third quarter to 128 million by the end of 2019. Total monthly active users across all franchises increased by a similar amount, reaching over 400 million through the fourth quarter of 2019, a few months before the pandemic erupted.

Activision already had its battle royale title, Call of Duty: Warzone, ready to launch in March 2020, which was downloaded more than 60 million times in the first quarter of last year. The popularity of these two free-to-play titles -- the mobile version and Warzone -- led to five consecutive quarters of over 100 million monthly active users in the Activision segment. 

As a result, Call of Duty generated $3 billion in bookings alone in 2020, reaching 35% of total bookings.

As Chief Financial Officer Dennis Durkin said on the fourth-quarter call, "Much of our success in 2020 was due to strong product and commercial execution, driving structural improvements in our largest owned franchises."   

New strategy to drive more growth

Management initially announced a turnaround strategy to improve execution across its biggest franchises in February 2019. While the stay-at-home dynamic has to get credit for at least some of the boost in player engagement last year, the increased level of investment in Call of Duty ultimately deserves the credit for where the company is today.

However, during the fourth-quarter call, one analyst asked about the potential effect on engagement as we transition from COVID-19 to a more normal environment. Activision Blizzard's Chief Operating Officer Daniel Alegre provided an answer that raised some concern about the strength of the company's current momentum.

As Alegre explained, many top titles saw an uplift in engagement at the start of lockdowns last year. He added, "And engagement patterns really oscillated throughout the pandemic, in particular, in countries where restrictions were eventually lifted." This statement suggests that Activision Blizzard could see a decrease in monthly active users as the economy reopens.

Still, Activision Blizzard has a counter to that scenario. CEO Bobby Kotick mentioned that it has "meaningfully expanded social connections" in Call of Duty. He credited this key factor to its recent business performance, since players who play in groups with friends online spend over three times more on in-game content, such as Call of Duty battle passes, compared to those who play alone. 

Alegre shared more insights, explaining that in more socially dependent games, such as Call of Duty and World of Warcraft that revolve heavily around multiplayer game modes, player engagement "remained at an elevated level" in countries where lockdown restrictions eased during the year.

Furthermore, Alegre noted that in the franchises where Activision is executing its new strategy to release more content, it has seen engagement substantially higher even in regions that have reopened. 

These comments are encouraging. It makes sense that players who are having fun and meeting new friends online are not suddenly going to give that up permanently once the pandemic is over. Overall, management's comments confirm the notion that video games are starting to behave like a social media platform in terms of how they allow people to communicate and engage with one another from around the world.

The next growth catalyst to watch

The stock has soared to new highs following the earnings report. Management expects the Call of Duty franchise to continue growing in 2021, as the company expands the franchise to new countries and releases more content updates. What's more, two new releases are on the horizon from Diablo and Overwatch that are expected to contribute significantly to the company's operating results. 

These releases are the next big growth catalyst for this video game stock, so investors should watch for any news about possible release dates or other development updates, when the company hosts the annual BlizzCon on Feb. 19 and 20. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.