Last week Activision Blizzard (Nasdaq: ATVI) released its annual results for 2019. Revenue was down over 2018, but the stock had a nice increase. This week ATVI announced it would remove its games from the newly launched GeForce Now streaming service. So, what is up with Activision?
In 2019, Activision revenue was $6.5 billion versus $7.0 billion for 2018. Net income in 2019 was $1.5 billion versus $1.8 billion the previous year. However, the week after the results the stock rose from the $58/59 range to the $62/63 range. The company was actually forecasting a worse performance.
Activision Blizzard is one of the few stocks that still trades largely around short-term results. Investors like to bet on how the next Call of Duty will perform. However, DFC has been talking with investors that are taking a more serious long-term look at the company.
In late 2018, ATVI was trading at near $83 a share. As new video game systems prepare to launch investors are wondering if the company can once again reach those lofty levels. The wildcard in the mix are streaming services that threaten to undermine Activision’s core franchise.
When it comes to streaming services like GeForce Now a leading question we get from investors is how much revenue will a publisher like Activision receive. The answer is none and that confuses many people.
Streaming services mainly are to reach consumers that don’t have access to the proper hardware. Publishers will make money by expanding the audience for their games which are hopefully sold at full price.
Unfortunately for publishers like Activision they have limited control over the ecosystem. In the console market, manufacturers like Sony and Microsoft control online services. Google and Apple control mobile. The PC side is the only area where Activision, via Blizzard and Battle.net controls the digital customer. Thus even a small service like GeForce Now is a threat.
For years, Activision Blizzard has insisted on hitting investors with meaningless monthly active user (MAU) numbers. The MAU for the Activision division soared from 36 MAU in the third quarter of 2019 to a whopping 128 MAU at the end of 2019. Meanwhile the Blizzard division is down to 32 MAU from a peak of about 40 million.
With the launch of Call of Duty Mobile, mobile games became the biggest revenue source for ATVI during 2019. In theory this sounds good, but for a company like Activision it remains problematic. Call of Duty Mobile reached 150 million users but revenue for the Activision division was flat in the fourth quarter as MAU more than tripled (Blizzard showed the largest decline).
Activision Blizzard remains one of the most interesting companies in the game space. Investors are right to ask questions about the long-term potential. The individual franchises are very valuable but not necessarily synergistic. At some point one wonders if the various parts of Activision Blizzard King may have more value in the hands of several larger, more strategic investors.
Stay tuned from the upcoming DFC reports on Activision Blizzard and other companies in the game space. If you would like to schedule a talk with a DFC analyst contact us here.
