Equity Research 29.07.2021

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ACTIVISION BLIZZARD, INC (ATVI)

Based in California, Activision Blizzard develops and distributes interactive video gaming software for game consoles, computers and mobile devices. A business model focused on service subscriptions and reccuring micro-transactions. It owns a
catalogue of popular franchises, performing at an international level :
– Activision: Call of Duty (CoD)
– Blizzard: World of Warcraft, Hearthstone, Overwatch
– King Digital: Candy Crush and others
ATVI sales decreased by 12% in 2019 to $6.4 Bn, following the divestment in Jan 2019 of its Activision franchise game Destiny (~ 6M MAUs), and the intention to focus on popular and higher growth earnings perspectives franchises: CoD Warzone – Battle Royale (launch date in March 2020), Overwatch (40M MAUs), and other mobile devices games. Consequently, this falling revenue impacted its incomes: with operating income and EBITDA down 19% and 15% vs prior year. Still, with $3 Bn, the firm will strive for the best, accelerating its investments in the development and marketing of its games.

2020 was a good start for game developer-publisher ATVI, with Q1-20 and Q2-20 delivering strong growth in sales up respectively 21% and 74% vs prior year. In March 2020, ATVI launched CoD Warzone, a battle royale mode with its CoD Modern Warfare game, offering another mode, different from its previous CoD games, to compete with Fortnite (Epic Games) Apex Legends (Respawn Entertainment), PUBG (Brendan Greene). A free-to-play mode that hit over 75M downloads worldwide with over 50M MAUs1. This success was also due selfisolation during this pandemic, especially in the US, as the lockdown period started in March 2020, that saw the rise of MAUs and earnings in the next quarter (Q2-20). Both Blizzard and King Digital are also performing at a higher pace with its top games with MAUs rising steadily (and consequently the rise of ARPMU): with revenue reaching respectively $1.7 Bn and $2 Bn, and new games / extension set to be released within the next months: Crash Bandicoot (expected for October) for both console and mobile devices, and likely a sequel of Overwatch (the 2nd opus).

With cash is rising ($1.7 Bn in FCF, $3.1 Bn in net cash), the focus is put on improving the core business via long-term investments. Especially, in the development of Esports worldwide through the Overwatch League, launched in 2018, able to attract an audience of 1.1M viewers, and sold rights to 20 teams to compete against each other in major cities arenas worldwide3. Generating revenues through sponsorships (Coca-Cola, T Mobile, HP), advertising, tickets & merchs, sales of media rights with YouTube Gaming (Google) exclusive deal for $160 M to deliver ATVI’s Overwatch, CoD League (Launched
this year) and Heathstone. This will become a major growth driver in the next years.

SHARE PRICE – Since January 2020, the stock gained 34.6%. The share price (16/09/2020) closed at $79.99 per share.
The release of free to play games (F2P), since: CoD Mobile (October 2019) and CoD Warzone, MAUs soared, as over 100M MAUs are engaged in playing Activision games. These F2P games also drive additional sales to its franchise game CoD Modern Warfare, pushed by demand, in part due to stay-at home situations, pushing the stock nearly to its all-time high $83.19 (24/08/2018). This strategy focusing on expanding player base with its existing titles has overall fastened ATVI momentum and expect to grow at 14% in for FY 2020, with an outlook set to $7.28 Bn in revenues and shares that will likely exceed its previous record.

Written on 17/09/2020

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