Activision Blizzard’s Q2 2015 Earnings Preview: Improving Software Sales Raise Hopes

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ATVI: Activision Blizzard logo
ATVI
Activision Blizzard

The American gaming giant, Activision Blizzard (NASDAQ: ATVI), is all set to release the second quarter fiscal 2015 earnings report on August 4, 2015. [1] The market is expecting the company to deliver EPS of $0.08. [2] Riding on high title sales in the First-Person Shooter (FPS) category, primarily driven by Call of Duty franchise, the company’s stock rose more than 25% since the onset of this year. Call of Duty is the highest selling FPS title, with a huge gamer base. Moreover, the company’s other releases, such as Destiny and Heroes of The Storm, as well as new expansion packs for World of Warcraft, are providing a further boost to the company’s revenue growth. Everyone will be looking out for the performance figures of Activision’s FPS titles, Skylanders franchise, and the new multiplayer online battle arena, Heroes of The Storm.

atvi stock

Activision Blizzard started the year with a 15% year-over-year (y-o-y) growth in GAAP net revenues to $1.28 billion in the first quarter of fiscal 2015, driven by strong growth in the digital segment and console full-game downloads. GAAP digital revenues were $581 million in the quarter, accounting for 45% of the total revenues. Since the digital segment is a high margin category, the company’s margins in the first quarter rose to 43%, up from 37% in Q1 2014. [3]

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Our $26 price estimate for Activision Blizzard’s stock is roughly the same as the current market price.

See our complete analysis of Activision’s stock here

Improving Software Sales To Boost Revenue Growth

According to NPD’s report, software sales growth seems to be picking up pace compared to last year’s performance. In June 2015, the video-game industry saw an 18% y-o-y rise to $869.4 million in total game sales (hardware, software, and accessories). The highlight in this report is that the software sales were up 21% y-o-y to $ 345.5 million, despite the lack of major releases. [4] As a result, the software sales in the first half of 2015 were up 3% y-o-y, indicating a reversal sign to last year’s trend. Moreover, with some of the major titles being released in the latter half of the year, we might see further improvement in the segment’s growth.

software sales

Most of the Activision major titles are released during the last quarter of the calendar year. At the 2015 Electronic Entertainment Expo (E3), Activision showcased the trailers and in-game details of its upcoming releases. Among the fan favorites were the return of the most played title in the Call of Duty series — Call of Duty: Black Ops III. Other games presented by the company were Guitar Hero Live, Skylanders Superchargers, as well as the next major expansion pack for Destiny, The Taken King. [5]

  • Call of Duty: Dominance To Sustain

Call of Duty has been one of the most successful franchises for the company over the last 5 years. Every year it has been dominating the FPS genre, with high worldwide sales and one of the largest online gamer bases. Last year’s Call of Duty: Advanced Warfare has sold roughly 19.5 million units through June 2015, with Sony’s PlayStation 4 leading the race with more than one-third of the total sales. [6]

According to Trefis estimates, Call of Duty: Advanced Warfare has sold roughly a million units over the last 3 months ending July 2015, indicating the strong demand for the title. Activision recently announced the fourth and final DLC (downloadable content) pack for the title that will have four new multiplayer maps and some additional features, to be released on August 4. [7] The robust demand for the title is surely going to have a major impact on next-generation console sales in the company’s Q2 earnings.

Moreover, the release of Call of Duty: Black Ops III is surely going to further boost the segment’s growth in the holiday season. (See: Activision might continue FPS domination with new Black Ops Title)

  • Destiny: 10 Million Wonder

Last year, Activision released another FPS title – Destiny, which turned around to be a promising franchise for the company, with over 10 million unit sales and was the third highest title sold in 2014. [8] With over 16 million registered users as of May 2015 and an average 3 hours of game-play per day, the title is gradually turning out to be a huge success for the company, and it will contribute significantly to Activision’s top-line growth in Q2 2015, providing a boost to next-generation consoles revenues.

atvi rev

  • Heroes Of The Storm: Was It Big Enough?

In June 2015, Blizzard amazed its game lovers with yet another title: Heroes of The Storm, but this time it was different. Apart from the usual FPS games, this game is a multiplayer online battle arena, or as the company likes to call it, “A Hero Brawler,” available only for Microsoft Windows and OS X in both free-to-play and freemium modes. [9] The game includes battle among the heroes from the company’s other franchises, such as World of Warcraft, Diablo, and StarCraft. The game is different from other usual titles released by the company, and has received great ratings from critics and positive responses from gamers.

However, the question everyone is asking is if it is a big enough move by the company? If yes, then is it impactful enough to offset the declining revenues from the World of Warcraft franchise? Activision reported a decline in the number of subscribers, as the subscriber base was down to 7.1 million at the end of Q1.

Dominant performance by FPS titles, additional revenues from other franchises, such as Skylanders, as well as a positive response to Heroes of The Storm, are the major key points on which the company is relying to maintain its market share in the industry.

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Notes:
  1. Activision Blizzard, Q2 2015, earnings conference call []
  2. Activision Blizzard, Q2 2015 earnings estimates, Yahoo Finance []
  3. Activision Blizzard, Q1 2015, earnings call transcript []
  4. June NPD report []
  5. Actvision opens E3 2015 with most impressive lineup in company history []
  6. Call of Duty: Advanced Warfare, VGchartz)) It was the #1 console title of the year 2014, with consolidated revenue of $11 billion. The game is still among the top 10 games in the U.S. in terms of units sold per month. ((Ref: 4 []
  7. Brace yourself for the final Call of Duty: Advanced Warfare downloadable content pack Reckoning []
  8. Destiny, VGchartz []
  9. Battle commencing 3..2..1 Heroes of the Storm now Live []