The gaming sector was one of the winners of 2015 as stocks like Activision (ATVI, Financial) and Electronic Arts (EA, Financial) proved to be big winners. Even in 2016, despite the market correction, both Activision and EA have performed better than many other tech stocks. EA is down roughly 4% year to date while Activision has lost roughly 9% of its value in the reference period. While I like both the companies, investors should make the most of Activision’s recent selloff and buy the stock on the dip.
Call of Duty: Black Ops III
The Call of Duty series is a great revenue driver for Activison. Recently, the company enjoyed the largest entertainment launch of the year (again) as its latest Call of Duty, called Call of Duty: Black Ops III, earned more than $550 million in its starting weekend.
The Call of Duty franchise is a significant revenue driver for Activision and with the company expected to launch its new title in the series soon, investors would want to buy the stock on the minor pullback. Though its successor has not been officially released, it is known that it will come from Activision's Infinity Ward studio, the producers of 2013's installment, Call of Duty: Ghosts.
Call of Duty: Ghosts was not well received by the market; however, the same will not be true for the upcoming title. In 2014, Activision proclaimed that it was moving toward a three-year improvement cycle, up from two years, for its Call of Duty series. An extra time of one year will result in a superior and improved product. The upcoming installment in the Call of Duty series will be the first from Infinity Ward under the new three-year time regime and will likely be a much bigger success than its predecessor.
Apart from this, Activision carries on to monetize the achievement of its latest installment Black Ops III. Activision recently updated the Black Ops III by adding micro transactions. Now players can buy weapons and outfits for small amounts of money. All in all, Call of Duty is Activision’s cash cow, and the company will continue milking it for a long time to come. Unlike Take-Two Interactive (TTWO, Financial), Activision is not a one-game wonder and has a consistent source of revenue, which makes it a sound investment in the present market.
King acquisition
Activision recently acquired King Digital (KING, Financial) in a multibillion-dollar deal. King’s primary games have some of the extensive grasp in mobile gaming, and in-game ads for Activision games could build inroads to players with high digital content assignation. The company paid a huge amount to acquire King Digital; with the World of Warcraft falling and mobile market accounting for a huge growth driver for producers who are usually stuck to PCs and consoles, the step has massive potential to pay off in the future.
Recently, the company observed that subscription-based MMORPGs like World of Warcraft look unsustainable with a robust rivalry posed by mounting stars like Time Warner in the PC and the console segment producing additional stress to mine future growth prospects.
However, Activision looks to counter this headwind by growing in the mobile gaming market. The mobile gaming industry is already worth billions of dollars and is expected to continue growing strongly in the near future. With this in mind, Activision’s acquisition of King will prove to be a long-term winner.
Conclusion
Due to the two reasons mentioned above, Activision is a great company, and the stock price will reflect it in the coming months. The Call of Duty series will continue to bring in millions of dollars in revenue for Activision and the recent acquisition of King will prove to be a great deal in the long run. Investors should use the current minor pullback as an entry point.
