Activision Blizzard, Inc. (NASDAQ:ATVI) is on pretty solid financial ground. And while competition in the gaming world is always going to exist and is always going to be robust, I think over time Activision stock will offer a decent risk/reward trade-off. Prospective investors should plan to hold for the long term — as with most stocks.
The challenge for any kind of gaming venture is that the world they operate in is constantly changing. Technology is rapidly advancing, and gamers expect their content providers to keep up. There certainly is a lot of exciting directions for Activision stock to go in. The question is how well it will choose these directions in the years to come.
I’m not a gamer myself, but I try to keep up on what’s happening in the space because there are numerous gaming elements that are used in the world of immersive entertainment.
The bread-and-butter of Activision stock has always been its big franchises. However, I’m particularly intrigued to see how Activision will address three things: downloadable content, mobile devices and micro transactions. There are so many different ways to experiment with putting content into the hands of players and monetizing it.
Future Revenues for ATVI Stock
Micro transactions are particularly interesting. While some players push back against micro transactions — partly from the perspective that it creates a class system of gamers dependent on their ability to pay — the revenue potential is enormous. With a micro transaction approach, it’s very easy to justify increasing numbers of purchases. Open quote hey, it’s only a few pennies.”
I also like the recent purchase of King, because now ATVI stock is driven by a more balanced revenue stream. Console, PC and mobile gaming each make up about a third of Activision’s sales.
Licensing is another area of potential profit. Activision can leverage popular content into other media. We saw that when “World of Warcraft” became a movie. A “Call of Duty” movie also seems like a slam dunk at some point.
The ongoing shift to digital digital distribution over physical games is also going to do wonders for ATVI stock margins. True, it’s not organic growth, but I’m not going to complain about saving money through digital delivery.
ATVI Stock Hinges on Quality Content
At the very core of ATVI stock’s potential future success, however, is content creation. Popular games and franchises are what every gaming and media company dream of. With each title facing so much competition, it is difficult for even large companies to maintain momentum in the gaming space.
This takes us back to the quality of content. Not only does Activision need to maintain quality control over its current content, but it must constantly be developing new content.
Some gamers may disagree with me, but I don’t believe there is any way to predict how successful any given piece of content is going to be in the gaming industry. But I do think it may be easier to target certain audiences with certain types of content than the TV and movie studios are able to.
Ultimately this is where the real challenge for Activision stock is going to be found. Product sales are indeed declining, as is revenue from “World of Warcraft” and there is a declining user base for King. There is increasing competition. Organic growth is not terribly impressive.
The Bottom Line for ATVI Stock
The ATVI chart demonstrates quite a degree of volatility.
I think you either have to buy and hold onto Activision stock today, or possibly sell naked puts against the stock on a rolling basis, or own the stock outright and sell covered calls against it. That will give you more of a hedge and generate income in the near future for you.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
