Activision Blizzard (ATVI) had performed remarkably well after its buyout of Vivendi’s stake. This has resulted in significant earnings accretion and provided Activision with an accessible model to develop better games and compete with its peers like Electronic Arts (EA). And with new console sales exceeding expectations, Activision promises to do better in the current fiscal 2014.
Activision enjoys a leading and diversified position in handheld and console gaming in Northern America and Europe, including toys and accessories that helped the company to generate strong free cash flow with solid performance of its gaming franchises across the regions.
In addition, Blizzard Entertainment’s StarCraft II: Heart of the Swarm, was the No. 1 PC title in North America in 2013. It was, however, the first Blizzard game to come to console in more than a decade, launched on the Xbox 360 and PS3 in 2013 after the record-breaking success of Diablo III on PC. Diablo III performed significantly well and ended the year with over 15 million units sold across all the platforms, and the launch of the Diablo III PC expansion pack may bring more gamers to Activision.
The next-generation consoles such as Sony’s PlayStation 4 and Microsoft’s Xbox One have hit 10 million units in combined sales as it has helped set up third-party game publishers for a grand slam 2014, and Activision Blizzard has many tailwinds going forward. The new console generation delivers faster processing and better graphics, increasing gamer interest that could earn admirable return on this fast-moving category of consoles.
Activision is also advancing its online gaming capabilities such as same-day downloads, improved social features and new opportunities for potentially higher margin business models like the sale of virtual items and downloadable content. This could help generate more revenue in the future due to the features that the new console generation brings to the platforms.
As far as the current fiscal year is concerned, the new consoles should be catalysts for revenue growth and margin expansion. Also, the growth in their install base over the next few years will give the company a good opportunity to capitalize on a rapidly expanding gaming population along with broader international penetration.
In addition, Activision is also promoting into the freemium game segment. Blizzard has recently brought Hearthstone, Heroes of Warcraft, free-to-play digital card game, which is now officially out of beta and fully released.
Activision will also be launching Heroes of Storm, which brings together the iconic characters from Activision’s three famous franchisees, StarCraft, Diablo and Warcraft. The game has huge potential and resembles Riot Games’ League of Legends, which had 27 million daily active players.
Apart from this, Activision is confident about “Destiny,” which will be launched in September. Bobby Kotick, Activision’s chief executive, claimed that Destiny will be the “best-selling new video game IP in history” and will definitely hit the billion dollar mark in sales. Destiny will compete against Electronic Arts’ Titanfall. However, since Titanfall is exclusive to Microsoft’s platforms, Destiny already has a competitive advantage due to its cross-platform presence.
Activision is carrying reasonably good momentum backed by new consoles and new games. It is increasing its penetration with strategies like free-to-play games and more blockbuster franchises, which makes it a good long-term option to benefit from the gaming industry.