What If Activision Puts An End To Call Of Duty Franchise?

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Trefis
ATVI: Activision Blizzard logo
ATVI
Activision Blizzard

The American game developing giant, Activision Blizzard (NASDAQ: ATVI), is the leader in the shooter games genre in the U.S. gaming industry, with its popular franchise: Call of Duty leading the game sales every year for the last 5 years. Apart from this, the company has also released some other first-person shooter (FPS) games, the latest being Destiny. However, Call of Duty still remains the major money minting franchise for the company. The annual title editions of Call of Duty have sold over 25 million units per year for the last 5 years. Last year’s version– Call of Duty: Advanced Warfare has sold over 18.8 million units within the first six months of its release. [1]

COD

The FPS and action games accounted for a combined 58% of the total game sales in 2014. However, the market share of these two genres has been declining for the past 3 years, with a major decrease in FPS game sales.

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At this stage, the success and contribution of the Call of Duty franchise becomes all the more important for Activision Blizzard. The company has recently announced the release of this year’s edition of Call of Duty, with the return of the most played series in the franchise’s history—Call of Duty: Black Ops III. Let us take a scenario where the company stops releasing the Call of Duty franchise from next year onwards. Considering all the industry and company trends, as well as the current financial condition of the company, this scenario can strongly impact its stock.

Our $26 price estimate for Activision Blizzard’s stock is in line with the market price.

See our complete analysis of Activision’s stock here

Impact Of Call Of Duty’s End

The all-time popular military based FPS game, Call of Duty, is the highest selling title each year in its genre for the last 5 years. The demand and popularity of this game has reached a whole new level among the core gamers. The franchise has achieved roughly $11 billion in revenues to date, with one of the biggest online communities in the industry. According to the data provided by the company, Call of Duty, along with World Of Warcraft and Skylanders, accounted for 67% of the net revenues in 2014, down from 80% in 2013. [2]

Currently, Trefis estimates the revenues from next-generation consoles to reach 2.5 billion by the end of our forecast period, and the revenues from previous-generation consoles to drop down to zero by 2020. Moreover, the revenues from PC platform are estimated to rise up to $0.68 billion by 2021.

In the scenario where the company stops releasing Call of Duty titles from 2016 onward, there might be a huge negative impact on the company’s revenues from major gaming platforms, especially on the new-generation platforms. Let us take a conservative estimate that Call of Duty accounts for 35-40% of Activision’s net revenues. In that case, the revenues from next-generation platforms might reach up to $1.627 billion by the end of our forecast period, whereas the revenues from previous-generation platforms might be almost negligible by 2019. On the other hand, percentage contribution of Call of Duty on PC platforms is slightly less than that on consoles. In the scenario mentioned above, the revenues from PC platforms might just reach $0.55 billion by 2021.

Considering all the above changes, this scenario will lead to an approximate 19.5% downside to the Trefis price estimate. This significant downside indicates the importance and strength of the  Call of Duty franchise for the company.

We have discussed two more scenarios, which can have a major impact Activision’s stock, in our prior articles:

 

1. Impact of World of Warcraft’s end on ATVI stock

2. What if Electronic Arts & Activision develop skill-based games for Las-Vegas casinos?

Below is the chart showing the impact of scenarios on the revenue growth of the company.

 

 

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Notes:
  1. Call of Duty: Advanced Warfare, VGChartz []
  2. Activision Blizzard, 10-K SEC filing, Dec 2014 []