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Activision Blizzard (ATVI) Bets on Esports and Mobile Gaming as Q3 Earnings Near

Christopher Vargas

Activision Blizzard ATVI is set to report its third quarter performance after the closing bell on Thursday, November 7. The video game developer has seen its shares rise just over 19%, slightly outpacing the broader consumer discretionary market’s 18.6% run.

The company has had some highly anticipated launches this year; its Call of Duty: Mobile made its debut last month as well as Call of Duty Modern Warfare. The company’s hand in the emerging world of esports has also captured the attention of investors as the new sport is predicted to become a multibillion-dollar industry in the near future.

Esports Captivates Audiences

Goldman Sachs GS estimates that esports can grow into a multibillion-dollar industry in the next three years, which has many investors stoked about Activision Blizzard’s Overwatch League. Since the league was launched in January 2018, Activision has sold 20 teams as well as broadcasting deals with the likes of Twitch, owned by Amazon AMZN, and Disney DIS-owned ESPN.

The worldwide esports audience is expected to nearly double to 645 million by 2022, making the young industry a tremendous growth opportunity. Activision Blizzard reported double-digit growth in viewership during the second season of Overwatch League based on average minute audience, a metric that calculates the average viewership for a program at a specific interval during the broadcast.

The average minute audience for season two of the Overwatch Grand Finals increased by 16% year over year and it's estimated that 1.12 million people tuned in to watch the championship match. Additionally, Call of Duty World League saw a 50% year-over-year increase in viewership for two events during the second quarter earlier this year.

Esports and COD Outlook

Despite the promising data from the gaming competition that Activision Blizzard held this year, the road towards turning this budding market into a legitimate revenue generating operation may be longer than some investors anticipate.

The company must first cultivate a large audience, which would mean it must focus on improving the viewing experience for spectators. Getting viewers to come watch the best in the world compete against each on the highest level will be what ultimately drives revenue in the new industry.

The company launched Call of Duty: Mobile which is another initiative the firm has launched to better adapt its games towards the contemporary gaming landscape. Mobile and PC games have captured the industry’s growth lately, which has in turn weighed on console games’ revenue. The new mobile Call of Duty hit 35 million downloads in its first three days.

One of the reasons Activision is watching the Call of Duty engagement closely is because of the launch of the Call of Duty League in 2020 with 12 teams. The league could also cement the company's place atop esports after the massively successful Overwatch League.

Our Q3 consensus estimates call for net sales to fall 29.16% to $1.17 billion while earnings plummet 51.92% to $0.25 per share. Activision is projected to bring in $1.41 billion and Blizzard is forecasted to grow 15.9% to $566.7 million. Looking ahead to fiscal 2019, estimates anticipate revenue to reach $6.4 billion for a 11.89% drop off and EPS to stumble 14.62% to $2.22 per share.

Bottom Line

Activision Blizzard is in a transition year where it is trying to regain its footing in the gaming industry after it has seen consistent revenue declines in its console games. The company is seeing the promise that esports has, and is trying to rekindle the love gamers once had for the Call of Duty franchise.

Improving the in-game camera is a task the firm must focus on if it wishes to truly captivate a larger audience. As esports viewership develops, more partner brands will emerge in hopes of advertising their brand during the events. Activision Blizzard’s earning revisions have trended higher, earning the stock a Zacks Rank #1 (Strong Buy).

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