Is Activision’s World Of Warcraft Back In the Game?

95.19
Trefis
ATVI: Activision Blizzard logo
ATVI
Activision Blizzard

Activision Blizzard’s (NASDAQ: ATVI) stock showed no significant reaction despite the financially strong earnings report released by the company on November 4. The company’s new successful title launches, strong performance by last year’s core titles, as well as high growth in digital domain helped in delivering a 9% year-over-year (y-o-y) increase in GAAP revenues to $753 million. [1] Activision’s results improved in all the geographical regions y-o-y, with 30% growth in Asia-Pacific.

One of the major highlights of the quarter was the reported increase in number of subscribers for World of Warcraft (WOW). It is a widely popular Massively Multiplayer Online Role-Playing Game (MMORPG) and has a huge gamer base. The franchise has long been a cash cow for Activision accounting for close to $0.9 billion in annual revenues. But the popularity of the game has waned since it reached a peak of nearly 12 million subscribers in 2010.

Our $22 price estimate for Activision Blizzard’s stock is roughly the same as 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

Is The Resurgence Of World Of Warcraft In The Cards?

MMORPGs started gathering the attention of gamers in 1997, with ‘Ultima Online’ credited as the first popular game of this genre. However, the gaming industry witnessed the launch of one of the greatest franchises, when Activision Blizzard released ‘World of Warcraft’ in 2004. The franchise attracted 400,000 subscribers within one month of the launch. The excitement among gamers increased, as WoW was the first widely detailed game in a genre with a growing customer base.

Within 2 years, the subscriber base crossed 7.5 million, making it the largest MMORPG in history. However, the demand for expansion packs for this game starting cropping up.  Since then, the company has released five expansion packs, including the latest pack — Warlords of Draenor. After the release of the second expansion pack ‘Wrath of The Lich King’ in December 2008, the subscriber base reached its all time high of 12 million. Interestingly, when the company released the third expansion pack ‘Cataclysm’ in December 2010, several free-to-play online MMORPGs like Aion: Ascension, Vindictus and Allods Online entered the fray. The declining interest of gamers in WoW forced the company to release the fourth expansion pack ‘Mists of Pandaria’ in September 2012. However, it failed to revive the interest of gamers and, as a result, WoW started bleeding subscribers, reaching a total of 6.8 million by June 2014, due to strong competition from these free-to-play online MMORPGs. [2]

However, by the end of the September quarter, the subscriber base improved to 7.4 million, with more than 1.5 million pre-orders for the fifth expansion pack ‘Warlords of Draenor,’ which was released on November 13, 2014. The fifth expansion pack is priced more than its previous versions; the digital and physical standard edition is available for $50 and the digital deluxe edition is available for $70.  Within 24 hours of its availability, more than 3.3 million copies were sold, and its subscriber base crossed 10 million. [3]

However, the jump in subscriber base does not completely ensure the resurgence of the franchise, as the first day sales of all the previous expansion packs witnessed a similar short-term spike. The last pack, Mists of Pandaria, sold 2.7 million copies on the first day of its release last year, taking the subscriber base to roughly 10 million. However, the figure slowly declined 32% over the period of 2 years. Although it is still the biggest subscription based MMORPG, the fee-based model means that it will keep losing out to other free-to-play competitors in the future. Trefis estimates the number of WoW subscribers to decline to 9 million by 2016, as the gamers are shifting from the MMORPG category to first person shooter (FPS) and other role playing categories. Moreover, the online communities for shooter games, such as Call of Duty, have started gaining more popularity every year.

The resurgence in the WoW subscriber base might be a one-time spark and if it declines 33% over the next two years, there will be a 4% downside to the Trefis price estimate. However, if the gamers drift back to the MMORPG genre due to a lack of software titles in the market and the subscriber base crosses 12 million by 2016, there will be a 4% upside to the Trefis price estimate.

View Interactive Institutional Research (Powered by Trefis):

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

More Trefis Research

Notes:
  1. Activision Blizzard Q3 2014 earnings call transcript []
  2. WoW down to 6.8 million subscribers []
  3. World of Warcraft surpasses 10 million subscribers as Warlords of Draenor launch begins []