Blizzard’s Game Pipeline Reinforces Our Price Estimate

In our previous note, we explained how nearly one-third of Activision Blizzard’s (NASDAQ:ATVI) value is tied to the expected growth in Blizzard’s active user base. See our interactive breakdown of Activision Blizzard’s  business which shows how Activision Blizzard needs its Blizzard unit to keep churning out great games. In this note, we take a quick look at what exactly Blizzard is doing to achieve this growth. The most promising upcoming launches are in 2019 and 2020, when Blizzard is expected to launch the next version of Diablo and Overwatch, along with a mobile MMO. This, along with the expected launch of next expansion of World of Warcraft in late 2018, reinforces our belief that Blizzard’s user base growth is likely to continue. Our price estimate for Activision Blizzard stands at $66, which is slightly higher than the current market price.  This is hinged on our expectation that Blizzard’s monthly active users will increase from an estimated 40 million in 2017 to nearly 77 million in 2022.

Overwatch, in particular, has been a huge success for Blizzard lately. In October 2017, the company announced via Twitter that Overwatch had reached over 35 million players, nearly 75% higher than the year-ago count. Now Goldman Sachs estimates that Overwatch 2, which is expected to be launched in 2020, will sell nearly 20 million copies in the first year itself. In addition, the bank expects 15 million unit sales for next version of Diablo in the first year of launch. These figures are higher than those for the previous versions of these games, suggesting growing popularity. Additionally, Blizzard has been working on an unannounced mobile MMO RTS game and has been hiring engineers for the same. A successful mobile MMO RTS can add a huge chunk of users to Blizzard’s platform.

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