Throughout the past few years, gaming companies have been performing well on the back of rising digital sales. According to statista.com, digital sales accounted for 56% of overall gaming sales in 2015 compared to just 20% six years before. The rise of digital sales has permitted gaming companies to enhance their margins, which positively affects their earnings. As an outcome, gaming stocks such as Activision Blizzard (ATVI, Financial) are well poised to gain massive advantages in the long run.
In the most recent quarter, Activision shared earnings per share of 49 cents, 7 cents better than the estimates. The company’s revenue came in at $1.57 billion, in line with consensus. However, that figure still signifies an increment of 51% year over year.
The stock is trading near its all-time high, but there is plenty of growth left in the video game industry which can certainly move the stock to great heights. The company has successfully managed its established franchises along with presenting new properties. Due to this, the publisher is able to hold its robust position in the gaming industry.
Moreover, the company makes smart moves in the gaming industry as the company’s base of users is growing rapidly. The business is doing tremendously well, but new games from King Digital (KING, Financial) are not the primary reasons for growth. It is the legacy business that is performing very well.
As per latest quarterly results, Activision reported a record of 46 million monthly active users and operating income was $123 million mainly due to the robust "Call of Duty" follow-on content as well as the launch of "Destiny: Rise of Iron."
On the other hand, Blizzard’s monthly active users escalated to 42 million, a surge of 9 million compared to that in the prior quarter, and operating income improved slightly more than 100%. However, King was the only part that underperformed as its user base declined 15 million, which led to a modest drop in revenue.
The company’s business carries on outshining its strategy on sturdy engagement in legacy games such as "Destiny," "Call of Duty" and "World of Warcraft." It also released some new games such as "Overwatch," which performed amazingly well, as it recorded over 20 million players in the five months after its launch.
Conclusion
Keeping in mind the reasons mentioned above, Activision’s stellar run will continue. The company’s ability to appeal to more and more users will prove to be a key driver for its growth. Moreover, the cash produced by the company is helping enhance the balance sheet. Apart from this, Activision also has a robust monetization tactic which makes it a sturdy buy.
Disclosure: I do not hold positions in the stocks mentioned in the article.
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