Activision Blizzard (NASDAQ:ATVI) has found a killer growth strategy. It's not that the game developer was struggling in prior fiscal years, but the latest trends are more impressive than investors have seen to date. Activision has added over 100 million highly engaged users to the Call of Duty franchise since early 2020, after all, with help from free-to-play and mobile offerings that drove demand for its premium titles and pushed profitability to new highs.

Management thinks that approach can work for many more of the company's franchises, whether its Candy Crush, Diablo, Hearthstone, or World of Warcraft.

And it's a tool it'll use in working toward its goal of 1 billion users in the next few years, compared to just over 400 million today. Let's look at why Activision is so confident it can reach that ambitious target.

A boy and girl playing console games.

Image source: Getty Images.

Credit the brand portfolio

"We own some of the most enduring and popular global entertainment franchises, supported by the very best creative teams in our industry," CEO Bobby Kotick said.

Activision surpassed management's growth targets for early 2021, mainly thanks to gains in its three biggest franchises, Call of Duty, Warcraft, and Candy Crush. Yet Call of Duty stood out even from that strong group by gaining 100 million players year over year.

That franchise benefited from a steady stream of new content releases that helped Activision avoid the slowdown that Netflix experienced in early 2021. While the latter also notched record growth last year, a pause in TV and movie production led to a weaker release calendar through March. But Activision's launch pace never slowed.

The Call of Duty framework

"Our Call of Duty free-to-play Warzone and mobile experiences have transformed the franchise, more than tripling the number of monthly players over the last two years and adding over $1 billion of operating income to Activision segment results last year," chief operating officer Daniel Alegre said.

The selling model for Call of Duty, which relies on funneling users into premium content through engaging free-to-play and mobile content, is one that Activision believes will easily apply to its other brands. And despite that tilt toward free experiences, the strategy yields higher earnings and increased profitability.

Operating margin jumped by 14 percentage points this quarter, in fact. "Call of Duty is the template we're applying to our proven franchises, as well as our new potential franchises," Kotick said, "as we attempt to grow our audiences to 1 billion players."

It's a year-round business

"Our increase in live operations is reflected in last quarter's results and our forward outlook as we've seen our business shift from a seasonal focus with a holiday emphasis, to an always-on business model with far less seasonality," Kotick said.

Besides being bigger and more profitable, Activision's business has become more predictable over the last few years. A steady stream of content releases within franchises has turned gaming into more of a subscription service than a one-time purchase around the holiday season.

That change has several positive impacts on the company, including lessening the risk of a single flop derailing an entire fiscal year of earnings. That predictability has management confidently projecting another year of strong growth in 2021 following last year's record spike.

The company is even more optimistic about the chances of doubling Activision's user base over the next few years, thanks to a few unique assets.

"We have a combination of leading owned franchises, best-in-class developer and commercial talent, and expertise across platforms and business models," CFO Armin Zerza said. These tools combine to make "a powerful platform for sustained financial performance," according to Zerza.

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