Amazon (AMZN) recently announced a record holiday season for its annual membership program, Amazon Prime. The company reported particularly strong sales of gaming consoles, claiming that the new Microsoft (MSFT) Xbox One and Sony (SNE) PlayStation 4 sold more than 1,000 units per minute during peak hours. Activision Blizzard’s (ATVI) Call of Duty: Ghosts for Xbox 360 was the best selling video game through the holiday season, followed by Just Dance 2014 for Nintendo (OTCPK:NTDOF) Wii and Grand Theft Auto V for Xbox 360.
The Call of Duty franchise has been quite successful for Activision, accounting for close to 70% of the units sold by the company in 2012. Annual editions of the franchise have made the top ten best selling games across the globe for the last five years. Activision had a market share of nearly 20% in the U.S. video games market last year, with Call of Duty: Black Ops II accounting for 14% of the Xbox games sold and 18% of the Playstation 3 games. The company’s stock has gained close to 70% through 2013 and the market price is now in-line with our $18 price estimate for Activision Blizzard’s stock.
First person shooters (FPS) like Call of Duty, Halo 4, Battlefield 3 and Far Cry 3 accounted for 20% of total video game sales last year, with Black Ops 2 accounting for more than half of these sales. Activision has taken advantage of the console transition by cementing its position at the top the FPS table. Electronic Arts’ (EA) Battlefield 4 could have provided competition to Call of Duty, but faced technical hurdles at launch.
Strong sales of Call of Duty: Ghosts on the Xbox 360 platform also hold well for Activision, which has announced that it will allow players who purchase the game for their current consoles to download the next-generation version within the same console family for just $10. The game also includes à la carte downloadable content (DLC) packs, micro DLC and Season Passes allowing the company to generate more digital revenues. The last edition, Call of Duty Black Ops II, generated more revenues in a single year than any other console game did in the past. Global online playing time by all users exceeded 4 billion hours during the September quarter.
Gartner expects Video Game Console revenue to reach $50 billion in 2014 and cross the $55 billion mark by 2015. With a strong market position, particularly in the FPS domain, Activision is well placed to capitalize on this growth.
Disclosure: No positions