Activision Blizzard (ATVI, Financial) continues to make impressive progress. Also, Activision is investing in its franchisees across the world coupled with expansion packs and refreshing its content portfolio that creates a great profitable growth portfolio for the company as well as for shareholders going forward. Its next generation consoles such as destiny on new IP and strong pre-sells show of World of Warcraft: Warlords of Draenor are driving its top line growth at a much faster rate than expected. Destiny has taken everyone aback with the blockbuster sales of $500 million in one day. Destiny is one of the biggest new franchises launched in the video game history.
Moreover, the company continues to see incredible player engagement with more than 9.5 million registered users for the game. Most of the players are now averaging 3 hours of game play each day that should undeniably boost its performance going forward. It has also taken into consideration the feedback and implemented scores for improvement that will bring many players into its fold in the future. Also, its World of Warcraft now has a total of 7.4 million active users. Activision expects its upcoming launch of Warlords of Draenor and release of the expansion to possibly boost its sales and profits going forward. The company also plans to launch this game in China and looks solid on pending government approval.
Expanding its pipeline
The company remains committed to expanding its franchise portfolio and investing in a rich franchise library. Blizzard is planning to bring World of Warcraft characters, the digital card games to mobile devices globally. This mobile release will have free-to-play access for its audience. The company is expected to release two additional free-to-play franchises such as Blizzard's Heroes of the Storm and Activision's Call of Duty Online. These new free-to-play games are designed predominantly for new platform, new regions with new genre and new audience.
Activision Blizzard is also rolling out expansion packs for its players across the world. It is expected to launch its first expansion pack on December 9, 2014. This new expansion pack will include the Dark Below, with all-new maps, missions, gear, weapons and a brand-new raid. Blizzard is also simultaneously working on future expansion packs as well as full game releases next fiscal year. The company expects this expansion pack will certainly drive player engagement and uplift its performance going forward.
In addition, the company is witnessing strong sales for its recent launch of Diablo III Ultimate Evil Edition on next and current generation consoles. It had delivered better than expected sales for the company. Also, Activision has released updates that facilitate new game content for the gamers. It now enables the players to explore and collect with added features such as replayability that should increase user engagement and drive its sales going forward.
Meanwhile, Activision realizes remarkable growth potential for Hearthstone. Its recent release of the Curse of Naxxramas adventure for Hearthstone is driving traffic on next generation consoles. It includes the single player encounters and the new cards. Further, Activision plans to bring in many new contents for the game. It is working with the developers for the complete expansion with more than 100 new cards. The company also plans to launch this game on Android tablets, phones and iPhones by the end of this fiscal year. That should attract more players for the game going forward.
New releases
Furthermore, Activision this holiday season should benefit from its new releases such as next generation consoles, Destiny and upcoming releases for World of Warcraft: Warlords of Draenor. Its peer such as Take-Two Interactive (TTWO, Financial) and Electronic Arts (EA, Financial) are not releasing any new title this holiday season. However, both these companies have reported better than expected earnings. Electronic Arts reported earnings of $0.75 per share compared to the consensus estimates of $0.55 per share, while Take Two Interactive Software posted earnings of $(0.44) per share. The consensus was estimating earnings of $(0.46) per share for Take-Two for their last reported quarters.
Activision has raised its full year guidance on revenue and earnings. It now expects its revenue to be approximately $4.8 billion, while its earnings are forecasted to come in at $1.35 per share for the full year. This is greater than its previously forecasted earnings of $1.29 per share on the revenue of $4.7 billion for the full year. However, it has displayed more conservative guidance for the fourth quarter. The company expects earnings of $0.86 per share on the revenue of $2.2 billion. The analysts have been modeling earnings of $0.94 per share on the revenue of $2.34 billion for the fourth-quarter.
Conclusion
Activision Blizzard certainly looks a promising stock as the company is investing in new franchises. It is also bringing in many new expansion packs and refreshing its content that will drive player engagement and drive its sales going forward. The analysts have estimated CAGR of 16.74% for the next five years that indicate sound growth prospects for the company in the long-run. The stock is trading at the trailing P/E of 24.41 and forward P/E of 14.39 that signifies reasonable valuation for the stock that has strong growth potential in the future. Also, its PEG ratio of 0.90 continues to support its growth over the long-run. It has profit and operating profit margins of 14.87% and 23.67% respectively. Its balance sheet carries total cash of $3.83 billion, while its total debt outstanding is $4.32 billion.
