On paper, most analysts will agree that Activision Blizzard, Inc. (NASDAQ:ATVI) is enjoying a solid start to this year. Against the January opener, ATVI stock has gained nearly 9%. Given that the year is still relatively young, this consistently hot performer has enough time to make up some ground. Yet trouble is looming over the horizon for ATVI.
Despite Activision’s immense reputation in delivering the most compelling first-person shooter games, another company has unexpectedly taken its throne.
Epic Games’ runaway hit, Fortnite, is all anyone can talk about these days. Even those who are not necessarily known for their gaming exploits, such as the musician Drake, jumped on the bandwagon. The momentum has ATVI worried.
At first, Fortnite was a fad, a strong blip on the radar, but a blip nonetheless. But it quickly gained steam and never let go. Last month, CNBC claimed that the upstart shoot-em-up game wiped out $6 billion of market value from ATVI stock.
But it’s not just ATVI feeling the heat. Long-time rivals such as Take-Two Interactive Software, Inc (NASDAQ:TTWO), which has many gritty, violent titles similar to Activision Blizzard, is down 9% year-to-date. And while Electronic Arts Inc. (NASDAQ:EA) has weathered the storm better than its peers, it too is not exempt.
From a nearer-term perspective, ATVI stock appears to be forming a bearish head-and-shoulders pattern. Given Fortnite’s massive success, I don’t think this is a coincidence. If I was a gambling man, I’d bet that ATVI will suffer some volatility before its situation improves.
But believe me — in the long run, it will improve. ATVI stock is a proven commodity. Fortnite is not.
ATVI Stock Is Down, Not Out
If you’re an Activision shareholder, it’s difficult not to be intimated with Fortnite’s success. Unlike other smash hits, this game has been a top performer for several months. In addition, its development team introduced updates to a deeply-appreciative fan base, and expansion to other platforms are underway.
But what makes Fortnite tick? Industry experts claim that the general audience format maximizes popularity. Unlike other first-person shooters which feature realistic violence, Fortnite utilizes colorful, vibrant graphics and over-the-top characters. The fantasy element and the fun gameplay — not the realism — is the focus.
While this hit title certainly has broader appeal than many ATVI games, that’s not what makes it special. Initially, Epic Games released Fortnite as a stand-alone game for consoles and computers. The original version was well-received, but not to the degree currently witnessed.
It was another title under Epic Games, PlayerUnknown’s Battlegrounds, that sparked Fortnite’s success. Introducing a “Battle Royale” mode where players fight to the death until a single person or team remains, Battlegrounds quickly captured gamers’ attention. Sensing a new trend, Epic integrated the Battle Royale mode to Fortnite. The rest is history.
To be sure, it’s an amazing story. However, it’s also a replicable one, which is why I’m not giving up on ATVI stock. Thanks to its wealth of gaming know-how, it won’t take long for Activision to introduce a new twist to this craze.
From what I can tell, this single gaming mode is all it took to transform a good game into a pop-culture phenomenon. Otherwise, from a graphics or general gameplay perspective, you can’t tell the difference between “regular” Fortnite and the popular version.
Again, this bodes well for ATVI stock. The company doesn’t have to reinvent the wheel: It just needs to make a better one.
ATVI Is the Real Deal
I’ll concede that Epic has turned the gaming world upside down. It truly hit it out of the park with its addictive first-person shooter. But in the internet age, all fads eventually fade.
When you consider prior gaming crazes that eventually collapsed, its search interest charts resemble a stock market crash: a massive spike up, followed by rapid decompression. So far, Fortnite is bucking the trend by lasting longer than other fads. However, this industry is notorious for having a short attention span. If Epic doesn’t produce a follow-up, it will instead suffer an epic fail.
In sharp contrast, ATVI is the real deal. Forget months. Activision has been delivering immensely popular first-person shooters since the turn of the century. In such a fickle industry, a proven track record is worth its weight in gold.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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