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Don't Underestimate Activision's Mobile Games

By Ryan Henderson - Apr 18, 2021 at 8:56AM

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The company's bets on mobile gaming are paying off.

Despite being most notable for its PC and console games, video game giant Activision Blizzard (ATVI 0.91%) has been making a push into mobile for several years. Perhaps that's unsurprising given the mobile gaming market is more than twice the size of any other platform.

Activision stock has jumped close to 50% in the last year, and it shows no signs of slowing down. In fact, the company just announced it expects to exceed management's previously issued first-quarter guidance. From hit titles like Call of Duty to less common names like Crash Bandicoot, Activision appears to be generating growth across the board, and mobile is a big part of that.

A screenshot from Call of Duty Mobile depicting characters parachuting into a town.

Image source: Activision Blizzard.

Cross-platform titles

As I mentioned earlier, Activision is well known for its presence in the console and PC gaming markets, especially with its legacy franchises like Call of Duty and Diablo. But in 2019, Activision launched Call of Duty: Mobile, and within the first few weeks, it had amassed more than 100 million downloads globally. Although it doesn't cost any money to play, Call of Duty: Mobile generates revenue through in-app purchases as users make upgrades to their respective characters. 

In Activision Blizzard's latest earnings release, the company announced Call of Duty: Mobile reported its best quarter ever, led by double-digit growth in bookings. To cap off the solid quarter, Call of Duty: Mobile also launched in China in late December, reaching more than 50 million installs within a matter of months. Since China is the largest mobile market in the world, management also stated that this success sets "the foundation for meaningful contribution in 2021."

Beyond Call of Duty, another legacy title that recently made an entry into mobile was Diablo, the role-playing action game that launched in the 1990s. However, when Activision first announced Diablo Immortal at BlizzCon 2018, it was met with heavy criticism from the franchise's avid fan base. Since then, Activision has been strategic about its Diablo Immortal rollout and provides very little insight into what lies ahead. While the game hasn't officially been launched, CEO Bobby Kotick said Diablo Immortal's regional testing was "extremely well-received," which should bode well for its official launch sometime in 2021. 

King's revival

King Digital was brought under the Activision Blizzard umbrella after being acquired for $5.9 billion in cash in 2016. King is home to popular mobile games like Candy Crush and Bubble Witch, and since the acquisition, it has increased revenue while also boosting its operating margin from 34% to 40%. 

But despite the strong financial performance, the average monthly active user count has actually dropped roughly 36% since the acquisition. This steady decline seems to have stabilized in 2020, and management expressed optimism that it could attract both old and new users back to its hit titles thanks to new social and competitive features. While reversing user trends still requires further execution, King seems to be on the right path to turn things around. 

Another contributor to King's recent revival has been the rise of Crash Bandicoot. Though Activision first gained ownership of the title through its merger with Blizzard Entertainment in 2008, it appears to be under the King umbrella now.

The game is based on the original Crash franchise and has ranked high on the charts recently among free mobile games. Now, with more than 27 million downloads, Crash Bandicoot's in-app purchases should start to drive meaningful revenue for the King segment. 

Mobile still matters

While Activision Blizzard's larger titles often steal the headlines, it's worth remembering that its mobile revenue grew 16% last year and now makes up 32% of overall sales. Having now found the right revenue mix for its King titles, regaining lost users and attracting new ones would drive substantial growth for the company. 

Though Activision currently trades at what some investors might call a premium valuation -- 34 times its trailing 12-month free cash flow -- the company is firing on all cylinders, and shareholders should expect continued growth from here. 

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