Profit on Call of Duty: Black Ops 2 and Activision Blizzard
Alvin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Activision Blizzard (NASDAQ: ATVI) Call of Duty video game franchise is one of the bestselling ever. Call of Duty: Modern Warfare 3, the most recent and eighth installment of the franchise, broke the $1 billion sales record in the entertainment industry set by the movie Avatar. Avatar took 17 days to reach $1 billion in sales. Modern Warfare 3 took 16 days. The COD franchise has been setting records since the release of Call of Duty: Modern Warfare 2.
Call of Duty: Modern Warfare 2 set the entertainment industry first day sales record by grossing $310 million in North America and the UK alone, surpassing the movie The Dark Knight. This record was then broken the following year by the next franchise installment Call of Duty: Black Ops, which generated $360 million in North America and the UK alone on the first day of its release. This was then broken by - you guessed it - the next and newest franchise installment Call of Duty: Modern Warfare 3, which generated $400 million on the first day of its release in North America and the UK.
In 2011, Black Ops, Modern Warfare 3, and Modern Warfare 2 were listed as one, two, and three respectively on the list of most played games on Microsoft (NASDAQ: MSFT) Xbox Live. Halo: Reach and Electronic Arts (NASDAQ: EA) Battlefield 3 were number four and five respectively. The newest installment of the Call of Duty franchise Call of Duty: Black Ops 2 is scheduled to be released on November 13, 2012. According to Amazon, the game surpassed Modern Warfare 3 in first day pre-orders by 30 percent and Black Ops by 10 times.
Black Ops 2’s main storyline is set in 2025 and is centered on a new cold war over rare earth metals between the US and China. In the game, war is fought through futuristic technology in robotics, cyber warfare, and unmanned drones. Treyarch, the game developer, has made the campaign less rigid by allowing player decisions to affect the story line. Overall, the game, from the E3 demo, looks like Halo and Call of Duty combined. Being a huge fan of Halo: CE and Halo 2, I consider that a good thing. Personally, as someone who owns Modern Warfare 3 and 2, I am, for once, actually looking forward to playing a Call of Duty campaign.
Besides Call of Duty, Activision Blizzard holds other well renowned video game franchises. Activision Blizzard has Diablo, Warcraft, and StarCraft. Diablo III, released on May 15, set the one day PC sales record by selling more than 3.5 million copies. World of Warcraft, as of December 2011, has 10.2 million subscribers. StarCraft II, released on July 2010, became the fastest selling PC strategy game of all time.
Looking at its financial performance, in 2011, Activision generated record revenue of $4.8 billion and record operating margin of 28%. For calendar year 2012, Activision expects to generate $4.2 billion in revenue and an EPS of $0.65. Currently, Activision has zero debt and a tangible book value per share of $2.47. Assuming perpetuity EPS of $0.65, Activision Blizzard’s current rate of return is approximately 7%.
Overall, Activision’s future looks bright. Bungie, the inventor of Halo, has a 10 year contract with Activision to develop 4 sci-fi games. Activision also has the upcoming release of World of Warcraft: Mists of Pandaria, StarCraft 2: Heart of The Swarm, and Call of Duty: Black Ops 2. Moreover, Activision is planning on expanding Call of Duty into China.
Looking at the competition, the biggest threats to Activision are probably Microsoft and Halo and Electronic Arts and Battlefield. Before Call of Duty became the most popular FPS on Xbox Live, Halo was number one. Halo 4 will be coming out on November 6 and will be looking to retake the crown while competing against Black Ops 2. Battlefield 3 is also a huge threat. IGN rated Battlefield 3 as the best Xbox 360 multiplayer game of 2011. However, the Call of Duty franchise still dominates. As was previously stated, Call of Duty was the top three in a 2011 list of most played games on Microsoft Xbox Live. Also, while Microsoft wants Halo to top Call of Duty, Call of Duty does bring 40 million Xbox Live users and a good source of revenue to Microsoft. Thus, the two companies have a decent relationship.
In conclusion, Activision Blizzard has a large number of dominant video game franchises and as a result makes a great investment. Call of Duty: Black Ops 2 is planned for release on November and it looks like it will be another successful installment in the series. Furthermore, Activision has a great balance sheet with zero debt and a tangible book value per share of $2.47. However, the company does face stiff competition in Microsoft, EA, and other game publishers. Nevertheless, the company makes great games and makes a good investment. However, investors looking to buy should dollar cost average to reduce their exposure to the European debt problem.
Alvin has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard and Microsoft. Motley Fool newsletter services recommend Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.