As a typical nerdy kid, I remember my parents yelling at me to go outside and do something physical. Ah, to be a child in the year of the novel coronavirus! In this paradigm, I could have easily said to them that I’m doing my civic duty by playing video games. No doubt, that thought process entered the minds of the management team running Activision Blizzard (NASDAQ:ATVI). Despite a brief downturn in March, Activision Blizzard stock quickly came roaring back to life.
This shouldn’t surprise anyone who hasn’t cut themselves off from the rest of the world hunkered in their doomsday bunker.
As Covid-19 began devastating the U.S., most states eventually issued stay-at-home orders, allowing exemptions only for essential endeavors. Obviously, all forms of entertainment – save for going outside for fresh air and exercise – are non-essential. Therefore, home entertainment investments such as Activision Blizzard stock experienced upside momentum.
Before the coronavirus, I was generally bullish on the video game industry. This is a segment that has evolved from a hobby to a veritable professional industry. Personally, I can relay how Sony’s (NYSE:SNE) PlayStation division likely saved the consumer technology firm from ruin during the Great Recession. And with popular forms of entertainment like movie theaters shuttered, those consumer dollars will likely shift to Activision Blizzard stock.
So, I should be gung-ho on ATVI, right? Well, it’s complicated.
While Activision has monstrously popular franchises such as its Call of Duty series, my research indicates that these games are losing their popularity. If so, that may mean rivals such as Electronic Arts (NASDAQ:EA) may have an opening to steal vital market share. Here’s why you may want to wait it out.
Consumer Sentiment and Activision Blizzard Stock
When you look at what has made ATVI so successful over the years, you can’t ignore the Call of Duty franchise. And a significant component of what drives Call of Duty is its realistic – read violent and gritty – gameplay.
In November of last year, I argued that Activision started to move away from this theme, introducing fantasy and science fiction elements to its flagship franchise. Unfortunately, sales results confirmed their decision didn’t work. But when they gave the consumers what they wanted, ATVI got its mojo back.
Nevertheless, getting their mojo back meant sales growth against a lower comparison point. When you look at the top ten best-selling Call of Duty games, you’ll quickly notice that the early 2010s decade represented Activision’s peak.
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Moreover, as ATVI’s Call of Duty games spiked toward peak popularity, other manufacturers were releasing violent-themed video games like “Grand Theft Auto” and “Left 4 Dead.” But when the 2010s decade rolled into town, video game manufacturers’ most popular gaming titles – according to respected sources like Time, Wired and Cnet.com – increasingly featured strategy and fantasy games.
That’s not to say that Activision Blizzard stock became irrelevant last decade. Nor did gaming companies fail to release violent titles. As Hollywood knows, blood and gore are easy revenue makers – that’s how fictional serial killer Jason Vorhees has 800 or so sequels to his name.
But as the years went on, consumers have increasingly gravitated toward games where violence isn’t the main selling point. As further evidence, look at the relationship between Call of Duty unit sales and time. If I didn’t know any better, I’d assume that as consumers mature, their penchant for violence declines.
That’s not particularly great news for Activision Blizzard stock.
More Violence Ahead?
Earlier this month, I discussed 7 gun stocks to buy during the coronavirus pandemic. As you’re probably aware, fears about social unrest have spiked gun sales to record levels. Those gun buyers are simply reacting to what we know instinctively: desperate people do desperate things.
More worryingly, without a job, many people have nothing to lose.
As a segue, I find it interesting that Call of Duty games grew toward peak popularity in the wake of the Great Recession. Were these folks, borne out of a similar desperation we’re seeing now, acting out their violent fantasies through video games? Now that’s a survey I’d love to see! But because we don’t know, I think it’s too early to make any definitive statements regarding Activision Blizzard stock.
Instead, if you’re bullish, I’d take a small position now but keep the powder keg dry. Another factor that I see as relevant is the lack of sporting events. That might drive enthusiasm toward EA shares, which may leave ATVI in the shadows temporarily.
But I do know that video games are natural outlets, especially during quarantine. Cynically, it appears that violence may make a comeback. If so, that would help Activision Blizzard stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long SNE stock.
