Activision Blizzard Preview: Beating The Industry’s Slump Handily

by Trefis Team
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Activision Blizzard
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Activision Blizzard (NASDAQ:ATVI) is expected to report earnings for the first quarter of 2013 Wednesday, May 8. [1] Successful franchises like Call of Duty and Skylanders helped the company beat the industry wide sales decline in the fourth quarter of 2012. Activision reported a 25% year-on-year increase in revenues for the three months ending December. In contrast, video game sales for the entire industry plunged 22% during the holiday period. [2] Results were buoyed by Call of Duty: Black Ops II, which was the highest selling game worldwide in 2012. [3]

The Black Ops II phenomena has shown no signs of slowing down. The game remained on the charts for the first three months of 2013, both in the U.S. and worldwide. We expect the company to deliver another solid quarter, staying ahead of the industry slow down.

Our price estimate for Activision’s stock is $16, in line with the current market price.

See our complete analysis of Activision’s stock here

Successful Franchises Hold The Key

Activision relies on four main franchises: Call of Duty, Diablo, Skylanders and World of Warcraft. These four video games accounted for 83% of the company’s $4.8 billion revenues in 2012.

Call of Duty

The success of titles like World at War, Modern Warfare 2, Black Ops and Modern Warfare 3 have firmly established the Call of Duty franchise as one of the premier first person shooters (FPS). Each of these games has made it to the top ten highest selling games list across the globe in the last five years. [4] The latest edition of the franchise, Call of Duty: Black Ops II has met the standards set by its predecessors, achieving the top spot in the U.S. and Europe in terms of video game sales.

Diablo

Diablo III was also a big success last year with over 12 million copies sold worldwide. The game was originally released just for personal computers and went on to become the fastest selling PC game of all time. This success prompted Activision to develop a Playstation 3 version of the role playing game (RPG). [5]

Skylanders

The innovative Skylanders franchise had generated revenues in excess of $1 billion from its launch in 2011 to the end of 2012. The franchise not only generates income through unit sales, but also requires gamers to purchase physical models of the franchise’s characters that have to be placed on the “The Portal of Power”, for the user to access the character. Toy sales have generated revenues of $100 million.

Activision has announced that the third game in the franchise will be launched during the holiday season in 2013. However, the franchise will face stiff competition from Disney’s infinity video game, which is being developed along similar lines and will also incorporate the company’s popular characters from franchises like the Incredibles, Monsters. Inc and Pirates Of The Caribbean.

World of Warcraft

World of Warcraft has been one of the most popular online multiplayer games, and a big cash cow for Activision. The company not only earns through product sales but also charges a monthly subscription fee of around $12 to $15, to players to allow them to play online in the vast multiplayer environment. The game released in 2004 and reached nearly 12 million subscribers in 2010. Since then, however, the number of subscribers has been declining, reaching 9.6 million at the end of 2012.

Activision also launched Starcraft 2 Heart Of The Storm in mid-March and the strategy based game has been well received. With over 700,000 units sold worldwide, it is fourteenth in the list of the top selling games of 2013. [6]

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Notes:
  1. Investor Relations, Activision Blizzard []
  2. Bleak Sales Greet PC Makers, Video Gamers in New Year, 11th January, 2013 []
  3. VGChartz []
  4. VGChartz []
  5. Activision Blizzard, Inc. : Diablo® III for PS3? Now Available for Preorder []
  6. Global Yearly Chart, VGChartz []
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