Here’s What Will Drive Activision Blizzard’s Near Term Revenue Growth

by Trefis Team
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Activision Blizzard
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Activision Blizzard (NASDAQ:ATVI) generates its revenues primarily from its Activision, Blizzard, and King Digital segments, along with its Other & Distribution business. Activision accounts for more than one-third of the company’s total revenues and EBITDA. We forecast steady revenue growth in the Activision as well as Blizzard segments in near term, led by the recent game releases, and the upcoming slate. However, King Digital will likely see a modest decline in revenues given the trends seen in its monthly active user base. We have created an interactive dashboard ~ What Are Activision Blizzard’s Key Sources of Revenue. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Activision To See High Single Digit Revenue Growth In 2018

Activision segment accounted for 37% of the company’s total revenues and 41% of the total EBITDA in 2017. The segment revenues have fluctuated in the past, depending on the releases. Activision revenues grew 16% to $2.6 billion in 2017, led by higher average revenue per active user. We forecast the segment revenues to grow in high single digits in 2018, and mid-single digits thereafter. Activision is benefiting from the Call of Duty franchise, and it should continue to see growth in the coming years, given its periodic releases.  Call of Duty: WWII was released in November last year, and it has aided the segment growth in the recent past. Looking forward, Call of Duty: Black Ops 4 is scheduled to release in mid-October this year. This should aid the segment growth in Q4 and beyond.

Blizzard Will Likely See Strong Growth In The Coming Years

The Blizzard segment accounts for roughly 30% of the company’s total revenues and EBITDA. However, we forecast the contribution from Blizzard to increase in the coming years. The segment revenues declined in mid-teens to $2 billion in 2017. Even in the first half of 2018, the monthly active user base has shrunk, and this has impacted the revenue growth. However, we expect the segment to rebound in the second half, led by World of Warcraft: Battle for Azeroth, which was released last month, and the game has seen positive reviews. In the long run, we anticipate new launches and regular content updates to keep the users engaged for a longer duration, thereby increasing overall revenue growth for the segment. E-sports in particular should see strong growth.

Expect King Digital To See Revenue Decline In The Near Term

Looking at the King Digital segment, it accounted for around 28% of the company’s total revenues and EBITDA in 2017, and we expect the contribution to decline in the coming years. This can be attributed to the decline in monthly active users from close to 500 million in 2014, to 310 million in 2017. However, the company has managed to grow its average revenue per user during the same period. We expect this trend to continue in the near term.  While the Candy Crush franchise is seeing some growth this year, the segment’s future growth will largely depend on new games, and advertising.

 

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