FINANCE TODAY | ISSUE NO.17
ACTIVISION-BLIZZARD IS HAVING QUITE A GOOD YEAR
Industries devastated by the pandemic have been the hot topic for the better part of the year. What’s been less discussed is the industries that are prospering. The gaming industry has been thriving this year, particularly in terms of sales. Video games can be used as a form of escapism, where players immerse themselves in unique and dynamic worlds contrasting the harsh reality we currently live in. As games themselves become more social, they are better able to satisfy our increased desire for social interaction. It is these factors that have been pivotal in fuelling the increase in demand for video games during the year. The company reaping the benefits of these conditions the most would be none other than Activision-Blizzard (NASDAQ: ATVI). Among its competition, Activision-Blizzard is having a remarkable year. The company’s full-year bookings (the net amount of products and services sold physically or digitally) are expected to increase at a rate faster than Electronic Arts (NASDAQ: EA) and Take-Two Interactive (NASDAQ: TTWO), its top two competitors (Ballard, 2020). With highly anticipated releases expected well into 2022, Activision-Blizzard is looking to position itself as the best gaming stock of this year.
COMPANY OVERVIEW – WHO IS ACTIVISION-BLIZZARD?
Activision-Blizzard is an American video game holding company founded in July 2008 via a merger between Activision Inc. and Vivendi Games. Vivendi Games is owner of video game publisher Blizzard Entertainment, hence the aptly named merger. In July 2013, Activision acquired 429 million shares from Vivendi, making them majority shareholders. The company is headquartered in Santa Monica, California and is home to several popular IPs such as Overwatch, Diablo, Hearthstone, and Call of Duty. In its mission statement, the company states, “Our products help build community and create social platforms that bring people together. We are relentlessly curious, pushing the boundaries of what is possible to create games of our dreams—and yours”.
During the past couple years, Activision-Blizzard experienced a strong decline in performance. The company saw a 13% decrease in consolidated net revenues from US$7.5 billion in 2018 to US$6.49 billion in 2019. This loss in revenue was associated with the loss of revenues from the Destiny franchise, which it had sold to video game developer Bungie back in December 2018. This loss was also a result of disappointing sales across their other flagship franchises that year, as 2018’s Call of Duty: Black Ops 4 was overall not well received by the general public despite receiving critical acclaim. This likely decreased the gaming community’s interest in the next installment at the time.
Their stock price saw a 28% decrease in November 2018, a result of the low sales seen by the previously mentioned Call of Duty: Black Ops 4. The game failed to outsell the previous installment in the Call of Duty franchise and investors felt that the organization was struggling to hold onto its player base, as Fortnite was rapidly approaching the peak of its popularity. The game also faced fierce competition from other AAA game launches (AAA denoting a high quality game) at the time, such as their competitor Electronic Arts’ Battlefield V. Activision stock climbed throughout the 2019 fiscal year, seeing an annual increase of 24.4% at year end, mostly thanks to the success of Call of Duty Mobile that year.
ACTIVISION-BLIZZARD'S WONDERFUL YEAR IN REVIEW
As lockdowns were imposed upon communities worldwide, ample opportunity arose for gaming to increase in popularity, as people were forced to figure out what to do with their new-found free time. The gaming industry has experienced the benefits of increased demand for their technology and services. Activision has made sure to capitalize on this opportunity by delivering supporters of the company with some of the greatest possible gaming experiences they could have received this year. The Deutsche Bank lifted its price target for Activision to US$90 per share from US$75, implying the stock will jump roughly 10% over the next year (Winck, 2020). Activision’s net bookings are expected to increase by 19.3% year over year (Ballard, 2020). The majority of their success this year can be accredited to the release of Call of Duty: Warzone.
Call of Duty: Warzone (also referred to as Warzone) is a free-to-play game mode added to 2019’s Call of Duty: Modern Warfare follows the battle royale format of games first popularized by 2017’s PlayerUnknown’s Battlegrounds or better known as PUBG. Warzone was released in March of this year and conveniently coincided with the lockdown orders being imposed by governments worldwide. The game mode reached 6 million players on the day of its release and has attracted 75 million players in the first 5 months since its inception. Monthly updates adding new content has helped to increase the longevity of the game and retain its current player base. Warzone’s popularity has increased to the point where it may very well be on its way to dethroning Fortnite. Piper Sandler’s Taking Stock with Teens survey found that 62% of American teens played Warzone this spring, in comparison to the 37% who played Fortnite (Ballard, 2020).
Alongside the growth sparked by their flagship franchise, Activision has been able to see steady revenues from Blizzard Entertainment’s popular titles. Hearthstone and World of Warcraft (generally abbreviated as WoW) have both amassed loyal player bases which provide these steady revenues through microtransactions (in-game purchases) and WoW’s subscription-based business model. They are an essential component of the organization’s business model. Activision-Blizzard is expected to release their third quarter financial results on October 29, 2020. Their earnings per share have exceeded expectations for both quarter 1 and quarter 2 of 2020, and the trend is unlikely to change as the company is expected to have a very successful third quarter. Warzone’s Halloween-themed update will likely help them to keep this momentum and with the release of Call of Duty Black Ops: Cold War next month following the success of last year’s installment, Activision-Blizzard simply has nowhere else to go but up.
Ballard, J. (2020, October 14). Why Activision Blizzard Is the Best Gaming Stock of 2020. Retrieved October 21, 2020, from https://www.fool.com/investing/2020/10/14/why-activision-blizzard-is-best-gaming-stock-2020/
Winck, B. (2020, October 14). Activision Blizzard will surge another 10% as gaming enjoys a permanent demand bump, Deutsche Bank says. Retrieved October 22, 2020, from https://markets.businessinsider.com/news/stocks/activision-blizzard-stock-price-target-atvi-upgraded-video-game-demand-2020-10-1029680560