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Better Buy: Activision Blizzard vs. Nintendo

By Robert Izquierdo - Apr 23, 2021 at 8:30AM

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Both video game companies had stellar 2020 performances. Discover if one edges out the other as a better investment.

As two stalwarts of the video game industry, Activision Blizzard (ATVI 0.91%) and Nintendo (NTDOY -1.13%) are appealing companies to invest in. Both exhibited impressive financial performances in 2020 as consumers stuck at home because of the coronavirus pandemic spent leisure time playing video games.

Beyond the pandemic, Activision Blizzard and Nintendo possess strengths to help extend last year's excellent performance. But does one company edge out the other as the better investment? Let's examine both to answer that question.

Men gathered on a sofa intensely playing video games.

Image source: Getty Images.

How each achieves success

While both operate in the gaming world, Activision Blizzard and Nintendo achieve success in different ways. The former earns revenue through video game sales based on a foundation of popular franchises. The latter possesses well-known franchises as well, but unlike Activision Blizzard, Nintendo also sells the hardware required to play its games.

This difference is key when you consider Nintendo's 2020 success is closely tied to its Switch gaming console. In the first three quarters ended Dec. 31, 2020, of its 2021 fiscal year, Nintendo generated 95% of its revenue from the Switch platform.

Consumers must purchase the Switch hardware to play Nintendo's games, creating a walled garden that tethers consumers to the company's ecosystem. This approach delivered excellent financial results for Nintendo.

The company's net sales for the first quarter through the third quarter were up 37.3% over the prior year. This strong performance led Nintendo to raise its full-year forecast by 14% on Feb. 1.

Activision Blizzard also enjoyed a strong 2020 financial performance. The company's fourth-quarter revenue was $2.4 billion, exceeding its forecast of $2 billion. For the full year, Activision Blizzard earned $8.1 billion, a 25% increase over 2019's $6.5 billion.

Activision Blizzard's lack of dedicated hardware for its games means it doesn't rely on any single revenue source. Instead, it's built up a diversified revenue stream.

The company generates nearly equal income across different sources of revenue regardless of the gaming platform. This diversification ensures its games are accessible to the widest audience possible.

Gaming Platform Activision Blizzard 2020 Revenue % of Total
Console $2.8 billion 34.6%
Mobile and ancillary $2.6 billion 32.1%
PC and other $2.7 billion 33.3%
Total revenue $8.1 billion 100%

Data source: Activision Blizzard.

As a result, Activision Blizzard ended 2020 with around 400 million monthly active users (MAUs) playing its games. The company is striving to reach one billion MAUs.

The mobile factor

Activision Blizzard's success in mobile gaming is particularly noteworthy. For years, PC and console systems were the primary platforms for generating video game revenue. In fact, Nintendo was one of the pioneers in console gaming.

But thanks to the advent of the smartphone, mobile has become the leading platform. Mobile gaming accounted for over half the video game industry's revenue last year.

This shift in consumer gaming makes mobile a key revenue generator. Activision Blizzard's mobile game for its popular Call of Duty franchise achieved its highest level of monthly players in Q4 2020 with a strong year-over-year increase in average spend per player.

Nintendo has ventured beyond the Switch with some games playable on mobile phones. But its mobile revenue, combined with other income such as royalties from licensing, totaled just 3% of total revenue for the first nine months of its 2021 fiscal year.

Nintendo recognized the need to do more in mobile, prompting a partnership with Niantic, a mobile gaming studio. Even so, Nintendo's mobile efforts are still in the early stages. Activision Blizzard, meanwhile, has proven success in the mobile gaming market with plans to expand its winning Call of Duty mobile strategy across more of its franchises.

The final verdict

So which is the better buy? Nintendo's history of successful consoles continues with its Switch. Activision Blizzard's cross-platform approach allows it to generate income regardless of the consumer's device.

Both companies possess healthy balance sheets. Both offer a dividend. Nintendo's dividend may appear more attractive with a yield of 2.63%, while Activision Blizzard's dividend yield is just 0.49% at the time of this writing. But Nintendo's dividend policy ties payouts to profits, causing the dividend to grow or shrink based on company performance. This makes Activision Blizzard the more consistent dividend.

This is just one reason why I prefer Activision Blizzard. The company's diversified income streams protect it better from the vagaries of consumer trends. It's also created a winning cross-platform strategy with its Call of Duty franchise that the company is extending across its other popular brands, giving it an engine for future growth. That's why Activision Blizzard's my choice for the buy between these two gaming titans.

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Stocks Mentioned

Nintendo Co., Ltd. Stock Quote
Nintendo Co., Ltd.
NTDOY
$53.21 (-1.13%) $0.61
Activision Blizzard, Inc. Stock Quote
Activision Blizzard, Inc.
ATVI
$78.57 (0.91%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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