Video game stocks have gained slightly of late, indicating solid momentum around the video game industry. This is proving to be a perfect tailwind for companies such as Activision Blizzard (ATVI, Financial), Electronic Arts (EA, Financial), and Nintendo.
If we look at Activision’s recently reported first-quarter results for fiscal 2015, the company posted decent results on a GAAP basis but fell shy of its previous performance by a small margin on a non-GAAP basis. Talking about Activision particularly, the stock has much room for growth in future. The last five years' stock performance is impressive, and the recent trends indicate better times. But, is Activision a wise investment option now as its EPS fell as compared to the last year’s performance? Let us have a closer look.
First quarter in focus
Activision recently posted results for the first quarter 2015 winning on GAAP basis but missing numbers on non-GAAP basis. The video game company posted revenue of $1.28 billion on GAAP basis which were better as compared to $1.11 billion it posted in the same period last year.
However, Activision’s net revenue fell to $703 million as compared to $772 million in the last year’s first quarter while it posted record revenue of $581 million from the digital channels which is a solid 45% of the company’s total revenue.
On the other hand, on a non-GAAP basis its top and bottom line remained flat year-over-year. On the EPS front, Activision posted EPS of $0.16 as compared to $0.19 per share in the same quarter last year.
Let us have a look at some of the strategies and the bright spots that might improve Activision’s performance and help it to regain its lost momentum.
Growth prospects and key takeaways
Activision is aware of its soft performance in the first quarter. As compared to other peers such as EA and Nintendo, Activision needs to work on its strategies to elevate its performance. In fact the management thinks these headwinds to be just short term crunches which the company can overcome in the course of time on the back of solid game offering by it in the market which are continually gaining momentum. There are many aspects that the company is seeing that can be good growth drivers for it in the upcoming quarters.
The company had been struggling with the declining subscribers for World of Warcraft. But the recent introduction of expansion packs of games such as Destiny and Hearthstone have supported its growth. Activision succeeded in combining for more than 50 million players for these games. This clearly indicates that its games are attractive and it can help Activision in driving more players to it. This will add meaningful revenue to it camp. It has already added about $1 billion revenue over its respective lifespan.
Activision finds its image from some of its best-in-the-industry game offerings. Out of them Destiny is one such game that the company is counting on. The demand for this game in the market is improving which can be seen by 20 million players playing record three hours per day per user. This is an exciting opportunity and to fetch this, Activision has recently announced a new expansion for Destiny with exciting new features. Activision is expecting this to generate solid revenue in the upcoming quarters.
The Chinese gaming market is also lucrative and the company is now much confident after relaxing rules for video games in China. To fetch this opportunity Activision has released Diablo Touting which sold impressively over 1 million units. This can also be a growth driver for Activision in China adding to its international market revenue. In addition, there are some new upcoming titles down the road including OverWatch which is a shooter game. Another anticipated introduction is The Return of the Guitar Hero on mobile and tablet platform. But this can be catch as the gamers might feel unsatisfied playing small fake guitars on a small screen in mobiles and tablets.
Conclusion
Looking at these bright spots and solid product pipeline, Activision is a good stock to pick right now. Another exciting thing to note here is that when it comes to video game companies, the investors are much interested in the digital and online revenue. Activision also stands impressive on this point also. In the recently reported quarter Activision netted $538 million digital revenue which is a solid 76% of its revenue. While on the online platform, it’s Online playing communities also boasted by a good 28% over the period. So based on these facts I suggest that investors definitely pick Activision now.
