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Media Talk

Activision Benefits from Robust Product Pipeline, Shift to Digital

ATVI announced results that came in above street expectations on the top and bottom line, and raised full year guidance for both as well. The stock reacted positively and broke out of its recent trading range to the upside. ATVI continues to make progress transitioning their business model to focus on high-margin digital sales driving year-round engagement and monetization. This progress is clear, as ATVI’s already large gaming community grew by 25% in the past year. With a robust product pipeline and strong execution of their business strategy, we believe ATVI shares can reach the high-$20s.

ATVI has 2 of the top 5 video game franchises year-to-date in North America and Europe in Call of Duty (CoD) and Skylanders. These franchises, like all of ATVI’s titles, are enhanced year-round with new downloadable content to keep users engaged and to drive additional monetization. The next full-game version of CoD is being developed by Treyarch, makers of the most successful CoD of all time, CoD: Black Ops. ATVI has shifted from a two-year to a three-year development cycle for CoD, providing Treyarch with an extra year to perfect the newest installment.

ATVI has made an aggressive push to enter China, the world’s largest gaming market. This creates a large long-term growth opportunity for the company. Most of ATVI’s top franchises are now available in China, including the recently launched Diablo and CoD Online.

There are several other recently announced and soon-to-be announced titles from ATVI, including reboots of the Guitar Hero and Tony Hawk franchises and the newly announced title Overwatch. In addition, ATVI has seen strong engagement and monetization opportunities from its current franchises including Destiny, Hearthstone, Starcraft II, and Heroes of the Storm. The excitement around ATVI’s new franchises along with downloadable content updates and upcoming full game releases of their current franchises lead us to believe that ATVI will have strong results for the foreseeable future.

ATVI is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  ATVI is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

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