On Thursday, Activision Blizzard (ATVI) reported impressive fourth quarter and full year earnings. The company beat earnings per share estimates by 8%. The earnings beat was led by success across the company's major franchises, which I highlighted in a recent article. Shares are up 12% Friday and have now hit a new 52 week high. With a busy 2013 planned, the company could see shares close above $14 for the first time since 2008.
Here are some highlights from 2012:
· "Call of Duty" was the #1 franchise for 2012 video games
· "Skylanders" was the #3 franchise for 2012 video games
· Activision saw record digital revenue
· "Black Ops II" was the number one selling game in dollars sold for 2012
· "Modern Warfare 3" was the number nine selling game in dollars sold in 2012
· "Skylanders" crossed the $1 billion sales mark as a franchise in 2012
· Blizzard had two of the best selling PC games with "Diablo III" (#1) and "WOW: Mists of Pandaria" (#3)
· "World of Warcraft" remained a MMORPG force with 9.6 million subscribers (as of 12/31/12)
The reason I remain bullish on Activision is its exciting pipeline to go along with its blockbuster franchises. Chief executive officer Bobby Kotick said that the company will continue to "invest in our established franchises, as well as several new properties". Here is a look at what's in store for 2013:
· "Call of Duty" Online, a unique partnership with Tencent in China to monetize the popular game
· Releasing "Starcraft II: Heart of Swarm" expansion pack on March 12th. According to VGChartz there are over 196,000 pre-orders for the expansion pack. The game also ranks #31 on Amazon's video game bestsellers list.
· "Blizzard All-Stars" game will likely be released in 2013
· Unannounced MMO (Codename: Titan) will have details hopefully released in 2013. This long awaited game will lift shares as investors have been waiting for this game that will replace "World of Warcraft".
· New game from Bungie, the studio that was responsible for Halo games. Activision acquired the talent and studio that will start a new series for the company. A new game will come in 2013 or 2014.
· "Skylanders" releasing new game in 2013, "Skylanders SWAP Force". The game will feature 16 new SWAPABILITIES characters and also 40 other new game related toys.
"Skylanders" continues to be a huge source of revenue for Activision. The game passed $1 billion in sales in 2012 and shows no sign of slowing down. I wrote a recent article about Disney (DIS) and their new Infinity game that will compete directly with "Skylanders". It will be interesting to see if "Skylanders" can keep up the rapid sales pace with strong competition. As of today, "Skylanders" had four of its characters on Amazon's bestselling video games list. "Skylanders" remains one of the biggest reasons I remain bullish on Activision.
The release of Disney Infinity is one of several negative things affecting Activision in 2013. Here are some of the things to watch that could hold back Activision stock in 2013:
- Release of "Disney Infinity"
- Attack of shooting video games due to school shootings could hurt sales of the "Call of Duty" franchise
- WOW subscriptions continue to fall and could impact monthly subscriber revenue amounts. This is one of the biggest cash cows for Blizzard
- Poor reception to the "Walking Dead" video game. Telltale Games already has a version of the game out and Activision will have to compete with this early game on the market.
- Many Activision investors are waiting on an announcement about the new MMORPG game, currently codenamed "Titan". If there is no news about this project, shareholders could start selling shares
- The continued saga over Vivendi's 61% ownership in Activision. Vivendi has been active in trying to sell off their stake. This could help or hurt Activision shareholders in 2013.
Analysts on Yahoo Finance are predicting first quarter earnings of $0.10 from $701.85 million in revenue. For the fiscal year, analysts see earnings per share of $0.96 on $4.54 billion in revenue. Activision released their own guidance on Thursday. The company sees earnings per share hitting $0.10 in the first quarter from $690 million in revenue. For the full year, Activision is calling for $0.80 in earnings per share from $4.2 billion in revenue.
Shares of Activision were down 13% in 2012. The company was one of my few misses in my top ten stock picks for 2012 annual list. It appears I was early to the party as investors are now recognizing the strength of Activision and Blizzard's assets. The company has an exciting year ahead and should reward shareholders like myself.
Over the last fifty two weeks, shares of Activision have traded between $10.45 and $13.01. The earnings beat caused shares to hit as high as $13.94, coming close to the $14 level. I highlighted the company's ability to hit this level by the end of 2012. Today's share price is the highest since November of 2011. A run-up to $14 would be the highest price for Activision shares since September of 2008. I think shares will hit that mark soon and can sustain it finally in 2013. Wait for a pullback and then acquire shares of this video game company.