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Investment Overview for Activision Blizzard (NYSE:ATVI)
- Microsoft Console Revenues: We currently expect Microsoft console revenues to decline in 2013, and thereafter increase to $1.52 billion by the end of the Trefis forecast period as the X-Box 720 is released and Activision develops games for the new console. The aggressive growth is based on the strength of the Call of Duty and other popular franchises on the XBox 360. However, if the Call of Duty franchise fails to impress gamers in the future and Microsoft console revenues drop to $0.79 billion by the end of the Trefis forecast period, there could be a downside of 10% to our Trefis price estimate. Conversely, if Call of Duty carries the growth that it has shown historically and reaches $2.32 billion by the end of the Trefis forecast period, there could be an upside of 10% to our Trefis price estimate for Activision Blizzard.
Activision Blizzard is a worldwide online, PC, console, handheld, and mobile games publisher.
Activision develops and publishes video games on various consoles, handheld platforms and the PC platform through internally developed franchises and license agreements. Activision currently offers games that operate on the Sony PS3, Sony PS2, Nintendo Wii, Microsoft Xbox 360 console systems; Nintendo DS, Nintendo DSi and Sony PSP handheld devices; the PC; Apple iPhone, iPad and other mobile devices.
Blizzard is the leader in terms of subscriber base and revenues generated in the subscription based massively multiplayer online role-playing game (MMORPG) category. Blizzard internally develops and publishes PC-based computer games and maintains its proprietary online game related service, Battle.net.
Its distribution business consists of operations in Europe that provide warehousing, logistical and sales distribution services to third-party publishers of interactive entertainment software as well as its own publishing operations and manufacture of interactive entertainment hardware.
Call of Duty
Call of Duty is widely regarded as the all time highest selling third-party gaming franchise in dollar terms. All three of its last editions Call of Duty: Modern Warfare 2, Call of Duty: Black Ops and Call of Duty: Modern Warfare 3 have surpassed the sales records created by their predecessors.
World of Warcraft
World of Warcraft (WoW) is officially the most played MMORPG throughout the world with a subscriber base surpassing 10 million members. WoW is sometimes referred as the money minting machine for Activision Blizzard as margins in the MMORPG business are in the range of 80-85%, the highest amongst all divisions.
Prolonged product cycles for X-Box 360 and Playstation 3
Both major gaming consoles, the X-Box 360- and the Playstation 3 are in the seventh year of their product cycles. This is leading to a decline in product sales as developers and gamers are waiting for the launch on next-generation consoles. We expect revenues to pick up once the consoles are released.
Gaming industry changing landscape from retail to digital
The video gaming industry has been changing from retail towards digital. This is evident by the fact that a growing number of games are being published digitally. Casual browser based gaming and mobile gaming have become a significant part of gaming revenues and are expected to continue to perform in the future.
Activision Blizzard has also changed its strategy to focus its sales through a mix or retail and digital gaming products. The recent DLC map packs of Call of Duty: Black Ops have performed exceedingly well and the trend is expected to continue. Furthermore, Activision Blizzard is now trying to enter into digital distribution with its Call of Duty: Elite service.
Emerging new platforms such as smartphones, tablets and social networking sites
The increasing digitization of the video gaming industry has ensured that video games won't stay limited to consoles and handhelds, rather that smartphones, tablets and social networking sites are emerging as serious gaming platforms.
Though Activision Blizzard's primary target consumer base is hard-core console gamers, the company is making strides towards diversifying in new platforms. In a recent analyst call, Activision CFO Thomas Tippl commented that the company is methodically investing in mobile and social gaming projects and is expected to make a staggering $1.25 billion from new projects that seek new, non-traditional sources of revenue like micro-transactions and in-game purchases.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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