Activision – A Due Diligence

Could the makers of Overwatch, World of Warcraft, and Candy Crush be a great investment?



ATVI is a video game developer company. It includes 5 business units: Activision, Blizzard Entertainment, Major League Gaming (MLG), Activision Blizzard Studios (film and tv production), and King Digital. Some of the key franchises include: Call of Duty (COD), Destiny, World of Warcraft (WoW), Starcraft (SC), Diablo, Overwatch, Hearthstone, Heroes of the Storm, and Candy Crush.


Metric Q1 2017 Year-Over-Year Growth Prior Guidance
GAAP Net Revenue $1.726 billion 18.6% $1.550 billion
GAAP EPS $0.56 124% $0.25
Non-GAAP EPS $0.72 41.2% $0.51


Activision reported sales figure of $1.726 billion, up 18.6%. Revenues were driven by increasing digital revenues, overwhelming success of Overwatch and the buyout of King Digital Entertainment.Segment-wise, Product sales were $509 million, down 21.1%, whereas subscription, licensing and other revenues grew 50.2% to $1.217 billion.

On the basis of distribution channels, Activision reported retail channel sales of $270 million (down 44% year over year) and digital online revenues of $1.386 billion (up 50%). Digital revenues contributed 80% of total revenue in the quarter. Other revenues grew 49% year over year to $70 million.

The company had over 431 million monthly active users (MAUs) at quarter end.Activision and Blizzard divisions’ online player community MAUs were 48 million and 41 million, respectively. King Digital reported MAUs of 342 million due to the absence of any big releases.

Earnings, adjusted for one-time gains and costs, were 31 cents per share. That beat the estimate of 21 cents per share by 40%. Activision exited the quarter with $3.248 billion in cash and cash equivalents. Long-term debt was $4.393 billion, down from 4.887 billion from 4Q16. Operating cash flow for the quarter was $411 million.

For 2Q17, Activision anticipates GAAP revenues of $1.425 billion and earnings per share of 15 cents. On a non-GAAP basis, revenues and earnings are likely to be $1.425 billion and 38 cents per share, respectively. And for full-year 2017 GAAP revenue, guidance was also increased by $100 million, to $6,100 million, and the company’s earnings-per-share outlook was increased by $0.16, to $0.72. On a non-GAAP basis, revenues and earnings are expected to be $6.1 billion and $1.80 per share, respectively against an earlier projection of revenues of $6 billion and earnings per share of $1.70.

Even though retail sales were down, ATVI made it up digital online revenue and other revenue. ATVI success in engaging players and launching digital content has led to even more growth opportunities in the future. In-game advertising was a big topic of discussion on the conference call, and management is slowly pushing this forward. And along with consumer products, the company is looking for ways to generate more revenue by leveraging existing content and engagement. Look for King’s mobile games to be a platform where advertising is a big revenue generator long term. Management talked about professionalizing e-sports. The company could effectively own the platform professional gamers use, drawing more users and viewers to e-sports. And beyond COD World League, management said they are launching Overwatch League as a way to reward players and deliver more content for other players to watch.


On May 11, they announced a change in management. ATVI appointed Collister “Cody” Johnson as its President and Chief Operating Officer, effective June 26, 2017. He will assume the title and duties of Thomas Tippl, the current Chief Operating Officer, who, on May 5, 2017, entered into an employment agreement to serve as a Vice Chairman. While Robert A. Kotick will continue to serve as the Chief Executive Officer and continue to play an active role in the day-to-day management, Cody will also assume the title of President from Robert A. Kotick. Cody worked for ATVI from 2008 to 2016 before leaving to lead a private school company. ATVI also appointed Spencer Neumann as its Chief Financial Officer, effective May 30, 2017. He will assume the title and duties of Dennis Durkin, the current Chief Financial Officer, who on May 10, 2017, entered into an employment agreement with the to serve as Chief Corporate Officer. Spencer is currently the CFO of Walt Disney. The share price dropped about 1% the day of the announcement, but has since recovered and continue its way upward like it has been doing for the past 6 months. I think this move should not change anything regarding ATVI management and everything should be fine going forward.


ATVI will launch new zombie content for COD Black Ops III on May 16. They are also planning to release COD onto mobile platform and now have the means to with their acquisition of King Digital. They are also planning to bring the hit game, COD, into a movie or a TV series following their success of the Warcraft movie released last year. Later this year, they’re planning to release Destiny 2 and COD WWII. They are also planning to grow its e-sport world with Overwatch League and COD World League through MLG. E-sports have been a very fast growing industry as more and more finals drawing records viewers. League of Legends 2016 finals were viewed by 43 million people, with a peak concurrent viewership at 14.7 million. ATVI is hoping their investment in e-sport will pay off. They have also released a new expansion for their hit card game, Hearthstone, on April 6. ATVI said not to expect a repeat of last year performance due to not as many titles being release this year compared to last year. I expect ATVI to continue to do well with their releases. With COD returning to its root of WWII, I expect it to be one of the biggest revenue driver for ATVI. Last COD installment was considered a disappointment, but it was still one of the bestselling game of 2016. Destiny 2 should also do very well and be another revenue driver.


ATVI plans are not fool proof. Nobody knows how well the COD movie or TV series will perform. History have shown that not all video games does well with the transition into movie or TV series, for example: Halo, Assassin Creed, Hitman, Resident Evil, BloodRayne, and etc to name a few. COD WWII will have to compete with Battlefield 1, which currently dominates the first person shooter of the WW era. Nobody knows how well the new COD mobile will do. Previous COD mobile games that were release, Strike Team and Zombies, have had mixed reviews. However, this time ATVI have a mean with King Digital, who specialize in mobile games, that should increases their chance of success with the next COD mobile installment. ATVI is also investing a ton of money into their e-sport development. They are hoping that Overwatch League and COD World League will be able to increase their revenue with the growing e-sports industry. The industry is currently dominated by mostly MOBA games, League and Dota. No one knows for sure how the league will do once they are launch, but there’s a good chance since ATVI will push it through MLG that they have acquired last year.

Disclaimer: I have a position in this. I believe that ATVI will continue to grow and it is one of my long play. I believe in the management and their product as I play a lot of their video games. So if any of you guys play Heroes of the Storm or Overwatch, hit me up! Please do your own research before making any decisions. Don’t make decisions based solely on the information provided here.

Update 07/15/2017: can be viewed here.