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Buy Activision Blizzard to Benefit from Gaming Growth and Consoles

June 02, 2014 | About:
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Activision Blizzard (ATVI) announced better-than-expected financial results for the first quarter. For the quarter ended March 31, 2014, Activision Blizzard’s net revenues were $772 million, as compared to $804 million last year.

On a non-GAAP basis, the company’s earnings per diluted share were a record $0.19, as compared to $0.17 last year. Activision Blizzard slightly increased its full-year adjusted earnings guidance for 2014 to $1.27 per share from its previous guidance of $1.26.

The Way Forward

Activision is in partnership with Tencent to bring Call of Duty to China in a format specifically for the Chinese market on the PC and as a free-to-play game. Activision is also developing Heroes of the Storm, which taps into a blooming genre with free-to-play online team brawler with characters from StarCraft, Diablo and the Warcraft universes.

Overall, 2013 was a transformational year for both the industry and the company. In the near term, 2014 and beyond, it expects to build on those changes. It has plans to launch four great additions to its franchise portfolio. These new additions show a balance of growth and diversification initiatives. Destiny is based on all new intellectual property, Hearthstone and Heroes of the Storm which leverages existing characters from proven franchises for new modes of gameplay, and Call of Duty Online which takes an existing franchise to a new geography with a new business model.

Each of these four additions to the portfolio is designed to capitalize on emerging audience opportunities and to leverage the tremendously engaged and connected communities built around its franchises. It plans to deliver on the tremendous creative and commercial promise of these new initiatives, even as it pushes its existing beloved franchises to new heights, including some of the best contents ever created for World of Warcraft, Skylanders and Call of Duty.

Solid Console Sales

There’s a record pace of transition for next-gen console with Sony recently announcing over 7 million units sold through worldwide for the PlayStation 4, and Microsoft announcing 5 million units sold in for the Xbox One. This is very good news for Activision business because both platforms offer faster computing power, richer graphics and more compelling online social experiences, which play directly into its strengths as the industry's biggest creator and publisher of AAA games.

Both these platforms improve the consumer experience of buying digitally, which is believed to increase its high-margin digital business over time.

Activision Publishing has delivered another quarter of industry-leading performance and is set up for success throughout the rest of this year. It remains committed to continuing to lead the toys-to-life genre with even more breakthrough innovations to captivate its young fans even though new competition is entering this category.

A Strong Pipeline

It plans to launch Destiny in the third quarter and is expected to be the biggest new IP launch in video-game history and over time, to become Activision's third $1 billion franchise. Its partner, Bungie, is creating a truly epic game that combines the speed and digital thrill of a great first-person multi-player action game, with the depth and character development of an MMO and RPG, culminating what is believed would be a new industry-leading genre, the shared-world shooter.

Activision also plans to launch its next entry into the Call of Duty series, Call of Duty: Advanced Warfare. This is the first Call of Duty game to benefit from a three-year development cycle, allowing it to introduce more innovation and more polished content at this point (pre-launch) than any previous Call of Duty game.

Over the long term, Activision continues to work to expand its portfolio with a carefully selected list of growth initiatives. Call of Duty Online for China is now being focused which has a great game play and its development is going well. Activision is more excited about the prospects of this project given its strong partnership with Tencent.

Conclusion

The quarter was a good one for Activision Publishing. It’s excited about its ability to continue to lead the industry through the console transition and by its incredible 2014 slate led by Destiny in September, Skylanders in October and Call of Duty in November. Investors should definitely consider an investment in this stock.


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