In every industry there are a few companies that defy the standard. Analysts are not currently bullish on the video game industry, projecting a decline in console sales by 20% while video game sales are weakened by the growing resale market. Activision Blizzard Inc (ATVI) doesn’t seem to be phased by this news with projected 2013 revenue increasing by 4.6%.
Activision is known in the industry for its high quality games that have cult like followings. If you don’t believe me, drive in front of Gamestop (GME) or Target (TGT) on the midnight release of the next Call of Duty title. Past Call of Duty titles hold 4 of the top 6 best selling Xbox 360 games of all time rankings with Call of Duty: Modern Warfare 3 selling 14.85 million copies worldwide and Call of Duty: Black Ops 2 becoming the first game to generate $1 billion in 15 days on store shelves.
Other titles under the company’s brand include Guitar Hero, Diablo, Starcraft, and World of Warcraft, an online role playing game that brings in $1 billion in annual subscription fees. Another billion-dollar winner is the Sklanders franchise, which has become the number one children’s title in both the U.S. and Europe.
At the end of 2013, we should see the release of new consoles from Sony and Microsoft. This will help game sales as gamers upgrade consoles and purchase new content from game producers such as Activision. Another plus is that the new Microsoft console will supposedly require users to register their games online, restricting them from reselling their titles. This should boost top line sales and limit the resale market drag on publishers as consumers currently choose to buy used games at discounted prices.
Activision is also debating on how to return value to shareholders through activities such as stock repurchases or dividends during 2013. The company is sitting on $3.96 billion in cash and could be looking to deploy this capital in new acquisitions or licensing agreements over the next year as well. EPS has also been on a rise from $.93 in 2011 to $1.11 in 2012 and $1.20 projected in 2013.
Business Solutions: Investing Ideas
Activision Blizzard is in an idle position right now. It is dominating in the content department with a vast umbrella of products that are leaders in each of their video game categories. They also have a steady stream of cash flow coming from subscription games such as World of Warcraft, although this front is facing some new competition. With Activision on the hunt to return value to shareholders over the next year, it would be a good call to be on the receiving end of this transaction. Meanwhile, the company has plenty of cash to use to help reinvesting in its own business in order to get new console content ready, while also looking for expansion through strategic acquisitions.
Activision Blizzard Inc (ATVI): A potential winner given its world-class content and impressive game sales. Activision should see a boost at the end of 2013 with new consoles being released and expect even higher sales numbers if the resale market starts to become obsolete. Look for a profit taking pull back to enter as this stock has shot up over the past month.
Written by Kapitall's Nick Sousa