Earnings season is usually an anxious time, especially for companies who have recently suffered steep losses. And that’s the case for video game giant Activision Blizzard (NASDAQ:ATVI). Just a little over a year ago, ATVI stock was at all-time highs. However, deteriorating U.S.-China relations took down the entire markets, and ATVI was no exception.
That said, both company executives and stakeholders have reason to approach their third-quarter earnings report with serious optimism.
Released on Oct. 25, 2019, the latest title from Activision Blizzard’s ultra-popular Call of Duty series, Call of Duty: Modern Warfare, broke all kinds of records. Although this won’t affect the Q3 report, it allows management to shift the narrative to a higher gear for ATVI stock.
After substantial and disruptive competition from the likes of Epic Games’ free-to-play, first-person-shooter (FPS) Fortnite, ATVI finally returned normalcy to the gaming industry. Once again, manufacturers who can afford big-budget “AAA” games can set the framework for the market.
And what a framework it is. Over the three days since the launch date, Modern Warfare generated sales of more than $600 million globally. While the price action for Activision Blizzard stock was choppy, shares nonetheless returned nearly 6% in October.
Further, Activision CEO Bobby Kotick finally had some resounding news to share. In a news release, Kotick stated that Modern Warfare “more than doubled the box office opening of Joker.” Additionally, it beat out multiple box office lifetime gross revenue records, including top-rated G movie Toy Story 4 ($434.8 million) and the top-rated R movie The Passion of the Christ ($370.8 million).
More importantly, investors can trust this rally in ATVI stock, and here’s why:
Gaming Sentiment Shifts Favorably for ATVI Stock
One of the most disheartening aspects of Fortnite’s success was that the FPS game represented the antithesis of Activision Blizzard. For nearly two decades, Activision established the paradigm for the FPS game that gaming manufacturers use today: gritty realism, digitalization of real-life weaponry, and an engrossing, geopolitically relevant campaign mode.
If you look at the history of Call of Duty games, they have largely increased in popularity, with few missteps. This franchise is among the key reasons why I’ve been bullish on ATVI stock.
However, with Fortnite, the game spat in the face of what we love about FPS. Gone were the violent and realistic depictions of violence in favor of cartoonish characters wielding comically exaggerated firearms. As far as I know, Fortnite specializes in a “battle royale” mode so therefore, no campaign mode exists.
In other words, Fortnite was the anti-Call of Duty, and it was winning the war for gamers’ attention. Having no answers, a dark cloud formed over Activision Blizzard stock.
But with Modern Warfare, the gaming industry has turned rational again. As New York University assistant professor Alexander R. Galloway hinted at, modern gamers desire realism. Games like Modern Warfare essentially allow anybody to practice combat skills and strategies. Galloway noted that:
This was Ronald Reagan’s argument in the 1980s when he famously predicted that action videogames were training a new generation of cyber-warriors ready to fight real foes on the real battlefield (itself computer-enhanced).
I also can’t help but notice that Modern Warfare takes its campaign mode straight out of today’s headlines. That has always been a controversial element of ATVI. But in this case, the controversy has clearly resonated with the audience, bolstering the longer-term narrative for Activision Blizzard stock.
Comprehensive Victory for “Traditional” Gaming
Another aspect of Fortnite’s dominance that disheartened stakeholders of ATVI stock was the game’s relatively small budget. Unlike a flagship Call of Duty game, Fortnite didn’t use any Hollywood-like theatrics: Epic simply built an entertaining game on top of an entertaining gaming mode (battle royale).
But Modern Warfare’s massive debut proved that to hit groundbreaking records, you must have deep pockets. Thus, this latest title in the storied franchise returns the gaming industry back to tradition: if you want to play, you’ve got to pay.
Not only does this lift Activision Blizzard stock, it helps the top dogs like Electronic Arts (NASDAQ:EA) and Take-Two Interactive Software (NASDAQ:TTWO). Moreover, the apparent return of the big-budget AAA games breathes new life into consoles. That’s good news for Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT), both of which will release their respective next-generation consoles.
I’ll even go out on a limb and say Modern Warfare bolster’s Michael Burry’s crazy call on GameStop (NYSE:GME). By the way, GME shares have moved up considerably since I wrote about the short-seller’s contrarian approach to the embattled gaming retailer.
But for Activision Blizzard stock, the biggest takeaway is that its consumer base finally makes sense. Give them a story, a gun, and some digital Russians to shoot, and they will come.
As of this writing, Josh Enomoto is long SNE.
