Activision's infinite 'Call of Duty' boost

Activision Blizzard annually gets a boost from its blockbuster video game franchise Call of Duty, the latest edition of which hits Friday.

The arrival of Call of Duty: Infinite Warfare, expected to be the biggest-selling video game of the year, comes just hours after the Santa Monica, Calif.-based game publisher reports its third-quarter earnings upon today's market closing.

Having seen Activision Blizzard's stock hit all-time highs in recent days --topping out with an intraday high Oct. 25 of $45.55 -- Wall Street analysts expect the No. 1 U.S. game publisher to surpass its own forecasts of Q3 revenue of $1.49 billion and earnings of 6 cents per share. Analysts polled by S&P Global Market Intelligence expect $1.56 billion and 8 cents per share.

Activision Blizzard (ATVI) shares on Thursday were $42.99, up nearly 1%, and are up about 13% for the year.

Analysts also expect Activision to beat its full year 2016 forecasts, in part because several other games have also done so well this year. World of Warcraft: Legion, the latest update to the hugely popular massive multiplayer online PC game, matched first-day sales records of 3.3 million for the franchise upon its Sept. 8 release. And Blizzard's new online action game Overwatch has doubled its audience to more than 20 million since its launch five months ago.

Beyond that, mobile games such as Candy Crush Saga, made by King Digital -- Activision's $5.9 billion acquisition of the London-headquartered mobile game developer closed in February -- remain among the top-grossing casual games on Android and iOS devices.

Thanks to growing revenue from King games, Call of Duty will account for less of Activision's full-year revenue than in the past -- about $1.5 billion of the expected $6.5 billion for 2016 -- says Michael Pachter, Wedbush Securities managing director, equity research.

That's welcome news for Activision because this year, Infinite Warfare has some tough competition. Electronic Arts, the No. 2 U.S. game publisher, has two highly-rated recent releases out now: the World War I combat game Battlefield 1 and futuristic fighting game Titanfall 2 (each like Infinite Warfare are available for PlayStation 4, Xbox One and PCs). "Battlefield and Titanfall got great reviews, so we have to see if COD holds its own," Pachter said.

 

Call of Duty: Infinite Warfare can have a 10% falloff from last year's Call of Duty: Black Ops 3 and still claim the title of biggest game of the year, he says. The buzz is good: Infinite Warfare and Battlefield both were the most anticipated holiday games, according to Nielsen.

Activision Publishing CEO Eric Hirshberg admits "it’s obviously great when our portfolio across multiple divisions performs well, but certainly Call of Duty remains a tent pole."

This year's release is developed by Infinity Ward, the studio that founded the Call of Duty franchise in 2003 and brought the franchise out of past world wars and into the fictional modern-day conflicts with 2007's Modern Warfare.

In another giant step for Call of Duty, much of Infinite Warfare takes place in space with epic space craft battles and infantry skirmishes reminiscent of Star Wars and the more recent Star Trek movies. "This game is in a whole new setting for Call of Duty being that much of it takes place beyond Earth’s atmosphere," Hirshberg said. "And that has allowed for some incredible innovations like Zero-G combat and space dog fighting. At the same time, we’ve made sure to make it feel gritty, militaristic and real, like a great Call of Duty game should."

The video game marketplace needs some big AAA games, says DFC Intelligence analyst David Cole. Overall, U.S. game software sales have been down 12% for the first nine months of the year, but Call of Duty and other big games will improve that so sales will only be down 7% for the year, he says.

Mobile and free games with in-game transactions continue to grow, but in the U.S., Cole says, "you have a consumer base willing to wait at midnight to plunk down $60 or more the day (a AAA game) releases. ... For certain games that freemium model can really work, but it doesn’t replace the huge AAA model."

Helping drive the U.S. video game market to an overall WHAT is demographics, he says. "What we are finding is that consumers get introduced to video games when they are young and continue to play games into adulthood," Cole said. "In 1996, almost all 10-year-olds were heavy gamers and they continue to play as 30 year olds today."

 


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