Activision Blizzard’s Core Franchises To Drive Q4 2015 Revenues; All Eyes On New Segment Strategies

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Activision Blizzard

Activision Blizzard (NASDAQ: ATVI) is scheduled to report its fourth quarter earnings report for the fiscal year 2015 on February 11, 2016. [1] Although the gaming company had an impressive line-up for the holiday season, the market is expecting the company to post Q4 EPS of 86 cents, down nearly 8% year-over-year (y-o-y). Moreover, the analysts are expecting the fourth quarter revenues to be flat y-o-y. [2] Call of Duty: Black Ops III, new expansion packs for Destiny, acquisition of KING digital, and opening a new eSports division will probably be the highlights of the earnings result.

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See our complete analysis of Activision’s stock here

Core Franchises To Boost Revenue Growth

Activision’s Call of Duty franchise launched its 2015 edition, Black Ops III, on November 6. ((Activision delivers biggest Call of Duty game in history)) According to the data given by the company, in the first three days, the title managed to surpass $550 million in sell-through worldwide, making it the biggest launch of the year. Moreover, the title recorded more than 75 million hours of game-play online in the first 3 days, making it the title with the highest per player engagement ever recorded for the franchise. [3]

According to the games sales data by VGChartz, the title has sold more than 20 million units as of January 23, 2016, with PlayStation 4 leading the race with more than 50% sales. [4] The series’ previous two editions averaged around 29 million unit sales. So there is a huge possibility that the third edition of this series might actually surpass the previous two with ease, considering the rising demand of the title among the core gamers.

On the other hand, 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] The title, along with its new expansion pack, has sold more than 15.3 million units worldwide. [6]

Both the franchises are among the top 10 titles in their respective genres and will contribute significantly to the company’s net revenues for the fiscal year 2015.

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

Entry To New Segments

In November 2015, Activision Blizzard announced its deal to acquire King Digital Entertainment (NYSE: KING) for an amount of $5.9 billion in equity value. [7] (See: Blockbuster Start For Black Ops III & King Digital Acquisition Drives ATVI Stock To All-Time High) Activision will not only get an opportunity to develop mobile content and cross-sell its products to King’s users, but also the addition of King’s mobile game developers to the company’s arsenal will help to continue to create games catering to their known customer base.  Some of the other strong mobile gaming competitors, such as Rovio, the maker of Angry Birds, and Zynga have somewhat faded away after the success of King’s super-hit games. King’s increasing market share in the industry will be a boon to Activision. Moreover, King Digital will further help Activision in reaching the Asian markets. Entry to the mobile casual games is the primary focus for the company in the coming few years.

Moreover, the company announced its own new division for competitive gaming, with Steve Bornstein, former CEO of ESPN, as the division’s chairman. [8] (See: Electronic Arts & Activision Blizzard Ready To Enter eSports Market) The gaming industry has been shifting towards more digital content and online gaming. Although the competitive video gaming sector has been there for a long time, it is just recently that the viewership and participation has picked up in the last 5 years. Moreover, the prize money and lucrative awards are attracting more professionals to this sector. Since, FPS (First-Person Shooter) games are gradually becoming a part of the online competitive gaming landscape, it is the  right time for the company to enter this market.

We can expect Activision to report a strong top-line performance for the entire fiscal year 2015 and that might further help the stock to get a bullish boost in the near future.

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Notes:

  1. Activision Blizzard, Q4 2015, Earnings conference call []
  2. Activision Blizzard, Analyst estimates, Yahoo Finance []
  3. Call of Duty: Black Ops III scores over half a billion dollar opening weekend []
  4. Call of Duty: Black Ops 3, games sales data, VGChartz []
  5. Embark on the next chapter from Bungie and Activision with Destiny: The Taken King []
  6. Destiny, game sales data, VGChartz []
  7. Activision Blizzard announces agreement to acquire King Digital Entertainment and better-than-expected third quarter 2015 financial results []
  8. Former CEO of ESPN Steve Bornstein and MLG co-founder Mike Sepso to lead Activision Blizzard’s new division devoted to eSports []