Activision Blizzard Q3 Earnings Preview: Looking Forward To Holiday Season

Activision Blizzard (NASDAQ: ATVI) is scheduled to report its third quarter earnings results for the fiscal 2015 on November 3, 2015. ^[1] The company’s stock has mushroomed up a staggering 70% over the last 12 months from $20 to $34.

Market analysts are speculating the company to post an EPS of 15 cents, down 35% year-over-year (y-o-y), on a revenue estimate of $950 million, down nearly 19% y-o-y. ^[2] However, the company has one of the best titles lined up for the holiday season 2015 with two of them already out in the market. We believe Activision’s three core franchises: Destiny, Call of Duty, and Skylanders, have been the top sellers in their respective category and will be the primary drivers for the revenue growth for the company in the coming quarters. Here’s why:

Our $29 price estimate for Activision Blizzard’s stock is roughly 14% below the current market price.

See our complete analysis of Activision’s stock here

Call of Duty: Huge Brand Appeal

Activision’s Call of Duty is the leader in the FPS (First-Person Shooter) category by a mile, and has been a dominating force in the industry for many years now. According to Trefis data, the franchise sold over 23 million units in 2014, with Advanced Warfare, Black Ops II, and Ghosts together contributing to the sales, with the second position in the shooter category taken by Electronic Arts’ Titanfall. The franchise’s last year’s edition Call of Duty: Advanced Warfare is still in high demand among the core gamers, with a total of 19.92 million unit sales till date. ^[3] Moreover, the game’s season pass sales and DLC (downloadable content) resulted in an increase in average revenue per user, driving the title’s revenue growth by double digits. ^[4]

Furthermore, is the company’s decision to bring back the most popular and successful storyline in the Call of Duty franchise: Black Ops. At the 2015 Electronic Entertainment Expo (E3), Activision announced the release date for its next title, Call of Duty: Black Ops III. The game is scheduled to release on November 6 this year across major gaming platforms. As a result, the number of Black Ops II monthly users immediately shot up to over 11 million. The series’ previous two editions averaged around 29 million unit sales. There is a huge possibility that Black Ops III will be the chart topper this year as well, considering the hype it has received over the last few months. The question is whether it will be strong enough to beat its previous two editions.

The impact of console revenues on the company’s valuation can be analyzed below:

Both the driving factors—the year-over-year increasing sales of the Call of Duty franchise and strong build up to the release of Black Ops III—might drive the franchise sales more than usual in this holiday season. Consequently, Activision might witness a surge in the revenues from all the major platforms.

Destiny & Skylanders: Off To A Good Start

In September 2015, Activision Blizzard added another expansion pack to its biggest new video game franchise launch, Destiny: The Taken King. This digital DLC was released at a market price of $40. However, the interesting fact is that it is intended for only those players that already own Destiny and its previous two expansion packs. ^[5] According to game sales data provided by VGChartz, the franchise has already sold over 11 million units till date, primarily on the next generation platforms. ^[6]

The company has been strategically marketing this product, by attracting that gamer base that has not yet played the game ever by providing a legendary edition of the game, which includes Destiny and its previous two expansion packs, along with The Taken King pack, for a price of $60. This way those players who are impressed by the game’s new features in this expansion pack and do not own the game yet, will most probably buy the legendary edition to start from scratch.

On the other hand, the company released its kids console game, Skylanders Superchargers, with toys-to-life and vehicles-to-life features on September 20. Moreover, the game also includes online multiplayer and racing features. ^[7] The franchise’s previous edition, TRAP TEAM, has sold over 3.5 million units till date and was the number one title in its genre in 2014. ^[8] Expecting the same performance from the new title, the company is confident ahead of the winter season.

Both these launches were in the latter end of the quarter and might not contribute enough to Q3’s results, but will be major contributors in Q4.

Heroes Of The Storm: Getting Bigger

One of the major takeaway from the Q3 results will be the performance of the online hero brawler, “Heroes of the Storm.”  In June 2015, Blizzard amazed its game lovers with yet another but different game, which is an online battle arena, available only for Microsoft Windows and OS X in both free-to-play and freemium modes. ^[9] It includes battle among the heroes from the company’s other franchises, such as World of Warcraft, Diablo, and StarCraft. Since it is operated through the company’s online gaming service, Battle.net, the success of this game will be reflected in Activision’s revenues from the online segment.

This surely is a successful year for the company, whose stock rose 40% over the last 5 months, and might enjoy one of the best holiday seasons in its history.

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More Trefis Research

1. Activision Blizzard, Q3 2015, earnings conference call [↩]
2. Activision Blizzard, Yahoo Finance, Analyst estimates [↩]
3. Call of Duty: Advanced Warfare, Game sales data, VGChartz [↩]
4. Activision Blizzard, Q2 2015, earnings call transcript [↩]
5. Embark on the next chapter from Bungie and Activision with Destiny: The Taken King [↩]
6. Destiny, Game sales data, VGChartz [↩]
7. Portal masters get ready to go full throttle with Skylanders Superchargers this Sunday [↩]
8. Skylanders: TRAP TEAM, game sales data, VGChartz [↩]
9. Battle commencing 3..2..1 Heroes of the Storm now Live [↩]