Activision Blizzard’s Earnings Preview: Heroes Of The Storm Might Prove A Good Gamble

The American gaming giant, Activision Blizzard (NASDAQ: ATVI), is slated to announce its first quarter earnings report for the fiscal 2015 on May 6. ^[1] In the fiscal 2014, the company reported record EPS figures of $1.42, up more than 50% from the previous year. On the other hand, Activision’s Q4 2014 net revenues declined 2.5% year-over-year (y-o-y) to $2.2 billion. However, impressive financial performance in the first nine months of 2014 resulted in a double digit (nearly 11%) revenue growth for the whole fiscal year, as the company reported $4.8 billion in net revenues. ^[2]

In 2014, Activision released new versions of some of its popular franchises, such as Call of Duty: Advanced Warfare, Diablo III, and Skylanders TRAP TEAM, as well as some new path-breaking franchises, such as Destiny and Hearthstone: Heroes of Warcraft. Activision’s two new franchises, Destiny and Hearthstone attracted over 40 million gamers combined, generating a net $850 million in non-GAAP revenues.  In 2014, Activision’s results in all the geographical segments improved y-o-y, with nearly 39% growth in Asia-Pacific and 15% y-o-y growth in Europe.

Our $21 price estimate for Activision Blizzard’s stock is nearly $2 below the current market price.

See our complete analysis of Activision’s stock here

Activision Retains Dominance In FPS Genre

The first-person shooter (FPS) genre is becoming more and more popular, and Activision Blizzard (NASDAQ: ATVI) has dominated the FPS domain for the last 5 years, primarily driven by the Call of Duty franchise. The company released the 2014 edition of the franchise, Call of Duty: Advanced Warfare, in November of last year, and it sold nearly 7.2 million units on all the major platforms in the first week of its release. ^[3] As of March 21, the title sold approximately 18.64 million units worldwide, with roughly 50% of the sales in North America. Sony’s PlayStation platforms lead the race in terms of the unit sales on console systems. In 2015 alone, the title sold roughly 1.9 million units, indicating the sustaining demand for the franchise. It was the #1 console title of the year 2014, with consolidated revenue of $11 billion.

Moreover, the company released the second expansion pack for the game, called Ascendance on March 31, 2015. ^[4] It provided the gamers with four new multiplayer maps, bonus weapons and other variety of features.

Furthermore, before the holiday season of 2014, Activision released a new FPS franchise: Destiny, which is an online FPS game based on a post apocalyptic science fiction theme in a persistent online world. Destiny has sold over 10 million units as of March 21, 2015, of which 4.44 million units were sold in the first week of its release, making it the #3 highest sold title of 2014. ^[5] Destiny has over 16 million registered users, averaging 3 hours of game-play per day. It became the highest played game in North America on the PlayStation 4 platform in December. The company will release another expansion pack for the game: House of Wolves in the second quarter.

Both the titles combined provide Activision an upper hand in the FPS genre, and with more shooter games and a few more expansion packs for the existing franchises, the company might continue attracting gamers.

Trefis charts below show our forecasts for the company’s title sales for the two major gaming platforms.

Skylanders & World of Warcraft Continues To Be The Favorites In Respective Genres

The popular Role-playing adventure game for kids, Skylanders, continues to be a huge franchise for the company, with over 240 million toys sold till date and $3 billion in revenues. The franchise outsold all action figure lines in 2014, outperforming its nearest competitor by 30%. Furthermore, Skylanders’ new title: TRAP TEAM, outperformed its nearest competitor by 17%. Activision plans to launch a new Skylanders game in the fourth quarter of 2015. According to VGChartz, Skylanders: TRAP TEAM has sold nearly 3.34 million units, as of March 21. ^[6]

On the other hand, the company’s widely popular Massively Multiplayer Online Role-Playing Game (MMORPG), World of Warcraft, is the most successful game of all time in its genre. However, the franchise is facing the decline in the subscriber base, due to the introduction of several free-to-play online games. To revive the interest of gamers in the franchise, the company has been constantly improving the game-play, by introducing new offerings and expansion packs. This resulted in an increase in the subscriber base to over 10 million, as well as generated additional revenues. Despite the recovery efforts of the company, the franchise faces a threat from new free-to-play titles in the market.

Blizzard To Enter New Genre With Heroes Of The Storm

The company plans on releasing a new ‘multiplayer online battle arena’ video game: Heroes of the Storm on June 2, 2015, with an open beta testing period starting from May 19. ^[7] It’s a free-to-play online game, where the gamers can battle with each other using the iconic characters from Blizzard’s Warcraft, StarCraft, and Diablo universe. The players can even customize their heroes and team up with friends for all-out bouts, through Blizzard’s online gaming service Battle.net. ((Heroes of the Storm, Wikipedia)) As of February 2015, over 9 million enthusiastic players had signed up to receive invites for beta testing. Being a free-to-play online game, it might attract gamers in the initial period. Through this game, the company is entering a lucrative market, and its success might open a new market for the company to tap into.

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More Trefis Research

1. Activision Blizzard, Q1 2015, earnings conference call [↩]
2. Activision Blizzard Q4 2014 earnings call transcript [↩]
3. Call of Duty: Advanced Warfare global sales, VGChartz [↩]
4. Call of duty: Advanced Warfare Ascendance DLC pack available now [↩]
5. Destiny global sales, VGChartz [↩]
6. Skylanders: TRAP TEAM, VGCharts [↩]
7. Blizzard’s worlds collide when Heroes of the Storm launches June 2 [↩]