Destiny & Call of Duty Might Seal Activision’s Dominance In FPS Genre

95.19
Trefis
ATVI: Activision Blizzard logo
ATVI
Activision Blizzard

On September 9, Activision Blizzard (NASDAQ: ATVI) released its much awaited title of the year, Destiny, which falls in the First Person Shooter (FPS) genre. Destiny is an online FPS game based on a post apocalyptic science fiction in a persistent online world. In the gaming world, persistent world refers to a virtual world that continues to exist even after the user is offline and the changes made by the user can be saved. This innovation, generally used in Massively Multiplayer Online Role-Playing Games (MMORPGs), has recently gained popularity among gamers. The game was developed by Bungie, a Washington-based video game developer and was released on Sony’s PlayStation 3 and PlayStation 4, as well as Microsoft (NASDAQ:MSFT) Xbox One and Xbox 360.

Activision delivered better-than-expected results in its second quarter earnings report released on August 5. The company managed to generate $658 million in non-GAAP revenues, up 8% year-over-year (y-o-y). On a non-GAAP basis, digital domain accounted for 73% of the company’s net revenues, which drove the overall non-GAAP operating margin to 17%. ((Activision Blizzard Q2 2014 earnings call transcript))

Our $22 price estimate for Activision Blizzard’s stock is in line with the current market price.

Relevant Articles
  1. What’s Happening With Activision Blizzard Stock?
  2. What’s Next For Activision Blizzard Stock After An 11% Fall Yesterday?
  3. Up 10% In A Month, Does Activision Blizzard Stock Have More Upside?
  4. What To Expect From Activision Blizzard’s Q4?
  5. What’s Next For Activision Blizzard Stock After FTC Plans To Block The Microsoft Acquisition?
  6. What’s Happening With Activision Blizzard Stock?

See our complete analysis of Activision’s stock here

Destiny Might Cross $1 Billion Sales Figure In 2014

In May 2012, Activision entered into a contract with Halo’s developers – Bungie – in which  the two companies agreed to develop and publish four Destiny games. [1] Earlier this year, the company gave a preview regarding the development progress of the game. The alpha version of the game was released for PS4 at the 2014 Electronic Entertainment Expo (E3) and was kept open for three days. In the third week of July, the beta version of the game was released on PlayStation consoles and attracted around 4.6 million gamers before closing down on July 27. [2] During the Gamescom 2014 held in August, the company revealed Destiny’s first expansion pack – The Dark Below – which will be released in December 2014. For PlayStation and Xbox users, the company released various offers and bonuses aimed at accelerating the initial sales of the game. [3]

On September 10, Activision reported that nearly $500 million of the game products have been shipped to retail and third-party stores in just 24 hours, making Destiny the most successful new video game franchise launch of all-time. [4] However, this figure is not as good as Call of Duty: Ghosts’ first day sell-in of $1 billion, but considering that Destiny is a new video game franchise and not a sequel, this figure seems fairly impressive. Activision believes that Destiny might be yet another $1 billion iconic franchise in its portfolio since it has became one of the biggest PS4 launch in North America, its biggest market. [5] This could mean that Destiny might sell almost 15 million copies this year. In just one week since the release, there have been approximately 11 million Destiny gameplay sessions in North America. In Japan, where the game is exclusively for PlayStation users, Destiny sold more than 97,000 units on PS4 and approximately 49,500 units on PS3. [6] Overall, the game’s success is evident in terms of demand and sales, and might play a vital role in the company’s third and fourth quarter results.

Activision expects record revenues in the third quarter with non-GAAP revenues of $975 million, product cost of 25% and operating cost of 60%, due to high marketing and launch costs of Destiny. [7]

Call of Duty’s New Title Might Rule The FPS Throne

Activision will be releasing the new edition of its most popular franchise, Call of Duty (COD) in the first week of November 2014. Titled as Call of Duty: Advanced Warfare, the game will be released on all major consoles with the exception of Nintendo. It will be the first Call of Duty to be unavailable on Nintendo after Call of Duty: Modern Warfare 2. [8] Call of Duty has been the most successful franchise in Activision’s history with total of around 150 million units sold till date. It leads the FPS genre by a wide margin. Activision’s Call of Duty franchise is the leader in the FPS genre with nearly 50% of the total shooter game sales worldwide. Activision’s rival, Electronic Arts (NASDAQ:EA) has been trying to catch up in the FPS market by introducing exciting titles such as Titanfall and Battlefield. These titles have succeeded in driving EA’s revenue growth in the last 4-5 months, but the wide scale appeal of Call of Duty is unmatchable. Now with the introduction of new COD title, the company might further strengthen its hold in the FPS market.

Call of Duty’s 2013 edition, Call of Duty: Ghosts performed lower than the company’s expectations, but still managed to be the second best-selling game of 2013, behind Grand Auto Theft V. [9] To gather gamers review for its new edition, Activision announced pre-order bonuses for the game. [10] The gamers can pre-order their Call of Duty: Advanced Warfare to get their personalization pack. Looking at the success of the franchise and the pre-release demand in the market for its new edition, the company expects more gamers to go for the Downloadable Content (DLC), thereby generating strong revenues from the digital content of this franchise. During the second quarter, Call of Duty: Ghosts managed to stay among the top 10 selling titles worldwide, according to NPD reports. ((June NPD report)) It gained #8 spot in June and is still popular among the core gamers due to its digital content sales. COD has one of the largest online communities due to its constantly updated digital content and expansion packs, extraordinary graphics and smooth game-play.

Call of Duty: Advanced Warfare, along with Destiny and Skylanders Trap Team, can play a vital role in defining the company’s position in the gaming industry at a time when software sales are lagging. While EA, with its FIFA 15 and Madden NFL 15 is focusing on sports genre, which is its strength, Activision is trying to eliminate any competition in the FPS genre. Irrespective of the product mix, the industry might witness an increase in software sales, as these games are the most awaited titles of the year.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Activision Bungie contract unsealed []
  2. Destiny Beta attracted 4.6 million players []
  3. Destiny gets digital upgrade offer []
  4. Activision sells in more than $500 million of Destiny worldwide as of day one []
  5. Destiny: PS4’s biggest software launch yet []
  6. Media create sales, Sept 9-Sept 14 []
  7. Activision Q2 2014, earnings call transcript []
  8. Nintendo loses third party staple as Call of Duty: Advanced Warfare will skip Wii U []
  9. Why did Activision end up on top? []
  10. Advanced arsenal trailer; custom exoskeleton & EM1 quantum weapon pre-order bonus f0r Advanced Warfare []