Don’t underestimate Activision’s mobile games
Although it is best known for its PC and console games, the video game giant Activision Blizzard (NASDAQ: ATVI) has been launching into mobile for several years. This is perhaps not surprising given that the mobile gaming market is more than double the size of any other platform.
Activision stock jumped nearly 50% last year and shows no signs of slowing down. In fact, the company just announced that it plans to exceed management’s guidance for the first quarter. Hit titles like Call of Duty to less common names like Crash Bandicoot, Activision appears to be driving growth across the board, and mobile is a big part of that.
As I mentioned earlier, Activision is well known for its presence in the console and PC gaming markets, especially with its legacy franchises such as Call of Duty and Diablo. But in 2019, Activision launched Call of Duty: Mobile, and in the first few weeks it had amassed over 100 million downloads worldwide. While it doesn’t cost any money to play, Call of Duty: Mobile generates income through in-app purchases as users upgrade their respective characters.
In Activision Blizzard’s latest earnings release, the company announced Call of Duty: Mobile posted its best quarter ever, thanks to double-digit growth in bookings. To top off the solid quarter, Call of Duty: Mobile also launched in China at the end of December, reaching more than 50 million installations in a few months. With China being the world’s largest mobile market, management also said the success lays “the foundation for a meaningful contribution in 2021.”
Beyond Call of Duty, another legacy title that recently hit mobile was Diablo, the action role-playing game launched in the 1990s. However, when Activision first announced Immortal Diablo at BlizzCon 2018, he was heavily criticized by avid fans of the franchise. Since then, Activision has been strategic in its Immortal Diablo deployment and provides very little information on what lies ahead. Although the game has not officially launched, CEO Bobby Kotick said Immortal DiabloThe regional tests have been “extremely well received” which should bode well for its official launch in 2021.
The rebirth of the king
King Digital was brought under the Activision Blizzard umbrella after being acquired for $ 5.9 billion in cash in 2016. King is home to popular mobile games like candy Crush and Bubble witch, and since the acquisition, it has increased its turnover while increasing its operating margin from 34% to 40%.
But despite the strong financial performance, the average monthly number of active users has actually fallen by around 36% since the acquisition. This steady decline appears to have stabilized in 2020 and management has expressed optimism that it can bring both old and new users back to its hit titles through new social and competitive features. While reversing user trends still requires further execution, King seems to be on the right track to turn things around.
Another contributor to King’s recent revival has been the rise of Crash Bandicoot. Although Activision first acquired ownership of the title through its merger with Blizzard Entertainment in 2008, it now appears to be under the King’s umbrella.
The game is based on the original crash franchise and recently topped the charts among free mobile games. Now, with over 27 million downloads, Crash BandicootIn-app purchases are expected to start generating significant revenue for the King segment.
Mobile still matters
While Activision Blizzard’s biggest titles often grab the headlines, it’s worth remembering that its mobile revenue grew 16% last year and now accounts for 32% of overall sales. Having now found the right revenue mix for its King titles, regaining lost users and attracting new ones would result in substantial growth for the company.
While Activision is currently trading what some investors might call a premium valuation – 34 times its 12-month free cash flow – the company is pulling in every shot and shareholders should expect continued growth from here.
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