Why Activision Blizzard is the Real Deal
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Two days after Electronic Arts (NASDAQ: EA) failed to please the Street, arch-rival Activision Blizzard (NASDAQ: ATVI) managed to come up with a decent showing in the first quarter. All eyes were on the number of players engaged in World of Warcraft, the company’s most lucrative franchise. And the 7-year old game didn’t disappoint investors as the number of users remained consistent from the previous quarter at 10.2 million.
The stability showed by the game on a sequential quarter basis was really impressive. It gets even more respectable when considering that EA’s franchise, Star Wars: The Old Republic, saw 400,000 players go away in just two months.
The performance of World of Warcraft assured the Street that the game, which brings in $15 every month from every subscriber, hasn’t lost much momentum. And now we will take a look at other aspects of the quarter and what plans Activision has in mind to keep up the tempo.
A snapshot of the quarter
Activision raked in revenue of $587 million and profits of 6 cents per share in the quarter on a non-GAAP basis, ahead of analysts’ guesstimates. Revenue declined from last year and Activision attributed this to stiff competition, weaker sales of Call of Duty, and a 1.2 million fall in subscribers for World of Warcraft. This is the reason the stability of the WoW franchise from last year’s fourth quarter was a much needed booster for Activision.
Preparing for war
The company can now expect to build upon WoW through Mists of Pandaria, its next expansion pack. But it is the lineup of other franchises that would excite investors the most. Activision is poised to launch a number of mega titles this year in the form of Diablo III, Call of Duty: Black Ops 2 StarCraft II: The Heart of the Swarm, and Skylanders Giants. This is one of the most aggressive lineups that Activision has put forward. Diablo III is slated to release next week and has already set a new pre-order record, according to the company. A lot is expected from this franchise and if we are to count on management’s comments, it won’t disappoint.
Up next comes COD: Black Ops 2, the best installment of the game ever, according to the game publisher, to be launched in November. The game’s previous version, Modern Warfare 3, was a runaway hit last year, with sales of 400 million on day one and went on to become the best-selling game of 2011. And if this is the best version, one should more or less be assured that it will raise the bar this year.
Bluffing again on guidance?
However, there was a slight hiccup in the form of a muted guidance for the current quarter. Activision projects non-GAAP earnings of 10 cents a share on revenue of $805 million, both of them lagging the Street’s expectation of 16 cents and $822 million, respectively. But that doesn’t deserve too much importance I believe. The company offered a muted guidance even the last time, which was much behind the market’s estimates. But they did beat that when judgment day came. So I won’t be much bothered about what Activision expects after taking a look at its array of games scheduled for release.
Activision remains the best of the lot among gaming stocks, ahead of Electronic Arts and social gaming maestro Zynga (NASDAQ: ZNGA), whose stock is in tatters so far this year. While Electronic Arts saw a rapid erosion of its Star Wars: The Old Republic franchise, Fool analyst Evan Niu is of the opinion that Zynga’s method of doing business is an unconvincing one. Another factor that makes Activision a better deal is its dividend yield of 1.5%, as against none offered by its peers. These factors, along with Activision’s arsenal of games set to be released this year, could take the stock higher as the year progresses.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard. 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.