Activision Blizzard: How Much Can Activision’s Gaming Segment Grow By 2020?

by Trefis Team
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Activision Blizzard’s (NASDAQ:ATVI) Activision segment accounts for roughly 30% of the company’s overall value, according to our estimates. The segment has been facing headwinds in the recent past due to lower sales for its games, primarily Destiny: Forsaken. As such, we forecast the segment revenues and EBITDA to decline in low-mid single digits in 2018, but grow in subsequent years, primarily led by continued growth in the Call of Duty franchise, and in-game offerings. Overall, we forecast the segment revenues and EBITDA to grow at a CAGR of 1.3% and 1.8% respectively till 2020. We have created an interactive dashboard ~ How Much Can Activision Blizzard’s Activision Gaming Segment Grow By 2020? ~ on the segment’s performance in the coming years. You can adjust the revenue and margin drivers to see the impact on the segment revenues, and EBITDA.

Why Do We Forecast Slow Growth For Activision Segment?

Activision revenues are a product of Average No. of Monthly Active Users (MAUs), and Average Revenue Per Active User (ARPU). Activision MAUs have remained more or less stable around 50 million over the past few years. However, ARPU has declined from $61 in 2014 to $52 in 2017. We forecast MAUs and ARPU to decline in the low single digits in 2018. This can be attributed to lower demand for Destiny: Forsaken. Note that Destiny: Forsaken is an expansion to Destiny 2, which was released in 2017. However, both the metrics should see growth in 2019 and beyond, primarily due to higher engagement of users in existing franchises, primarily Call of Duty, and longer shelf life of games. The segment continues to see strong sales for its most popular franchise ~ Call of Duty.

The latest release of Call of Duty: Black Ops 4 has seen strong sales over the past couple of months. In fact, it was the top selling game for October 2018, according to NPD. However, the November top grosser title might go to Take-Two Interactive’s Red Dead Redemption II, which is seeing strong demand. The Call of Duty franchise will likely boost the segment revenues in the near term, which were down in the high teens for the nine month period ending September 2018. Also, the new season of Call of Duty World League kicked off earlier this month. The league provides a unique platform for gamers to connect. Also, live streaming of the game generates additional advertising revenue, which should augment the overall segment revenues. The company also plans to offer more in-game purchases, which should bode well for the segment growth.

Overall, we believe that the Call of Duty franchise will continue to do well for the company, and aid the overall segment revenue and EBITDA growth over the next few years. However, any significant growth is unlikely, given the high reliance on a single franchise. A moderate increase in Activision’s revenue will also account for a slight uptick in EBITDA over the next few years. EBITDA growth will also be aided by an increase in digital sales. In order to ensure freshness in the game content, the company launches regular updates of the existing games, which are essentially extensions of the game, and could offer better margins.

 

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