Here's Why Activision Blizzard Is Poised To Outperform

Aug.14.14 | About: Activision Blizzard, (ATVI)

Summary

Activision boasts a robust product pipeline to sustain strong growth momentum in the future.

Activision raised full-year 2014 outlook over the expectation of strong sales for new gaming titles based on Call of Duty, Destiny and Diablo franchises.

The game publisher plans to spend $500 million on Destiny over the 10-year partnership with Bungie.

Activision looks well-positioned to benefit from growing sales of the PlayStation 4 and Xbox One consoles.

Activision Blizzard (NASDAQ: ATVI), the largest U.S. video-game developer, has recently delivered better-than-expected second-quarter earnings results, citing impressive sales of Call of Duty, Diablo, and World of Warcraft game franchises. Meanwhile, Activision's World of Warcraft and Diablo III: Reaper of Souls titles remained at the No. 1 position under the subscription-based massively multiplayer online role-playing games, or MMORPGs and PC games category, respectively.

Santa Monica, California-based Activision boasts a strong pipeline of new gaming titles including World of Warcraft: Warlords of Draenor, which has already been pre-purchased by approximately 1.5 million subscribers. In addition, the game publisher plans to release Call of Duty: Ghosts Nemesis and SkyLanders: Trap Team titles during the second half of 2014 while Blizzard's Call of Duty: Advanced Warfare installment has been scheduled for launch in November this year.

Microsoft (NASDAQ: MSFT) and Sony's (NYSE: SNE) latest gaming consoles as well as a robust product pipeline should help the game publisher to propel strong sales growth over the upcoming months. Activision has plans to launch Diablo III: Reaper of Souls - Ultimate Evil Edition and Destiny for the next generation Sony's PlayStation 4, or PS4 and Microsoft's Xbox One consoles in the third quarter of fiscal 2014. However, the company could face strong headwinds resulting from higher adoption of free-to-play games and limited presence in the mobile gaming segment.

Here's why Activision Blizzard is poised to outperform
Activision currently boasts the world's most valuable entertainment franchises and online communities since the game publisher's multi-billion dollar sales bagger Call of Duty: Ghosts has become the No. 1 gaming title on the PS4 and Xbox One consoles. Activision has been reportedly working on the next iteration of its best-selling franchise, Call of Duty: Advanced Warfare, which would be powered with new cutting-edge graphics, gameplay mechanics, and a much appealing storyline. In addition, the company boasts ambitious plans to target a mass number of Chinese gamers through its PC-based free-to-play, customized format of Call of Duty in partnership with Tencent, which could enable it to gain strong footholds in the world's largest base of video game players.

Apart from Call of Duty, the company has invested $500 million in its massively multi-player online game, Destiny, which is expected to be its next new multi-billion dollars gaming franchise. The company has started taking pre-orders for this game, and Activision is on track to set a new industry record with new franchise. According to Cowen & Co. analyst Doug Creutz, the company is expected to sell more than 20 million units in 2014. Activision-Bungie shooter-MMO Destiny beta version has recently been played by more than 4.6 million gamers. Although Call of Duty is likely to be the most successful franchise of 2014, Destiny will be the most successful intellectual property, or IP for Activision Publishing, a wholly-owned subsidiary of Activision Blizzard, in its entire history.

On the other hand, Activision has also been experiencing excellent demand for other properties like Hearthstone: Heroes of Warcraft, World of Warcraft, and Diablo III: Reaper of Souls lately. Diablo III: Ultimate Evil Edition is already scheduled for launch on August 19, and will be available at 1080p on both the PlayStation 4 and Xbox One, said Blizzard's associate producer Tiffany Wat. Consequently, Activision seems well-positioned to benefit from strong tailwinds for new gaming consoles, which are selling at a much faster rate. Sony and Microsoft are competing head-to-head in the gaming consoles segment, and hope PS4 and Xbox One sales hit 12 million and 9 million units in 2014, respectively. Moreover, Microsoft has recently unveiled ambitious plans to release Xbox One in 29 more countries from September, which should propel higher demand for Activision's gaming franchises.

The bottom line
With the video game industry poised to hit $70.1 billion by 2015, Activision provides significant upside to investors even as the game publisher currently trades near an all-time high. The company looks well-positioned to benefit from the upcoming releases of Diablo III: Ultimate Evil Edition and Destiny on newly launched consoles, the PS4 and Xbox One. In addition, Activision's Call of Duty: Advanced Warfare may face less competition from other shooter games, including Battlefield which has been postponed for launch until after the holiday season.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.