Things have been a little rough as of late conceding the ATVI stock. That would be putting it lightly. ATVI for those that don’t know started as just Activision stock, and then they merged with Vivendi in 2009 which in turn came with acquisition of Blizzard among others which helped expand their portfolio into areas they weren’t reaching including, moba, mmorpg and RTS games. They then acquired King in 2016, who are most famously known for Candy Crush and helped Activision get a good reach into mobile gaming. In case your wondering, the candy crush series makes close to 4 million dollars every day.

Where is the stock now and why ?

Back in October 2018, ATVI was trading consistently around 80 per share but since then it has taken a plummet to between 40-45, which is nearly half of what it was worth a few months ago. Here are some of the major issues that have taken place over the past 6 months or so. Its mid October, just a few weeks before Blizzcon, the annual conference of everything Blizzard. Rumors started to leak out if there would or wouldn’t be any new game announcements, especially Diablo. Well when the time came for Blizzcon, there was a new Diablo. Unfortunately it was Diablo Immortal, which is a mobile version of diablo. This caused a lot of backlash from the fans about the game itself and the method in which it was done. They didn’t set expectations properly and the teased fans that something big would happen.

Its no surprise that Call of Duty is a huge success, however its become quite clear that the series is getting stale. This years release was Black Ops 4, yup the 4th. Normally COD is the best selling game of the year, however this year it was second in physical sales, second to only Red Dead Redemption 2. It was also down year on year with the previous entry in the series, COD:WW2. Coincidentally, that is the only other game in the top 20 sales for the year from ATVI and it was 18th. The issue that ATVI only has 2 games in the sales top 20 should be telling and we will dive deeper on that shortly.

In early 2019 the bad news just kept on coming for ATVI with the story that Bungie was leaving and even worse they were keeping all of their rights to the massive Destiny. This was a partnership that formed in 2010 after Bungie and Microsoft parted ways after their glorious run with the Halo franchise. The Activision deal was for four full games between 2013 and 2020. It was clear that they werent going to hit the mark of two more full games releases by 2020 and if they did the community would be toxic on the game. At the release of Desinty 2, the game was praised for having a better story but that most of the enemies were either the same types from the first game or just a resin to something else. Force two more games out in a short time and you would be getting nothing but reskins everywhere. When Bungie split with Microsoft they didn’t keep the rights to the games they created. Everything in the Halo universe stayed with Microsoft, so why did ATVI not have anything in place to keep their investment covered? The Destiny universe is beloved by fans and the constant stream of expansions good or bad means that most games probably end up paying at least double the entry cost to keep the content coming, on top of all that there is the in game micro transactions that help keep cash flowing in.

In early 2019 ATVI had their annual earnings report and there was a lot to digest from that. The first and most important is that they had decided to cut about 8 percent of the workforce or in raw numbers that meant that 800 people were out of jobs. The one silver lining here is that there have been a lot of other game companies close up and just leave all of their employees out in the rain. The benefit of being ATVI is you have been around long enough to understand that if you want to attract the right talent you can’t treat people that way. They announced that they had over 150 million dollars set aside to compensate the workers who weren’t contracted. As a business you have to run a tighter ship if things aren’t going well, however at the earnings report ATVI announced record profits. Revenue was 6.61 billion in 2017 and in 2018 that number saw a rise to 7.5 billion which lead to a net profit of 1.8 billion. ATVI failed to elaborate on the reason for 800 job cuts other than to restructure to be more efficient.

The earnings report also dove into the upcoming 2019 schedule and noted that the projections would be lower due to minimal releases for the company. On the Blizzard side of the coin it was noted that there would be no mainline releases in 2019 which dashed the thought that we might see Diablo 4 in 2019. It is now obvious that game is 2020 or later.

Is this the ground floor ?

Its been said that its always best to get in on the ground floor. Considering how low the stock is trading at currently, can it go any lower ? If we take a look at their current franchises things look pretty bare, but it wasn’t too long ago that COD was this world dominating game. It became so big that it branched off into three studios

Activision has lost a lot of premium talent over the past decade and in a field where some games can take 3 years plus to develop it might take sometime before the ripples of that splash are felt. First would be losing the majority of infinity ward, who at the time was considered one of the top FPS developers. They were innovative and talented and most of those people left when Vince Zampella and Activision parted. Then in December of 2018, Glen Schofield who created Dead Space and cofounded Sledgehammer games left the company. Sledgehammer was one of the three teams along with infinity ward and trey arch that make the COD games once every three years. In my opinion they were bringing the freshest and best content to that franchise after Vince Zampella and gang left form Repsawn. Then in January of 2019 Bungie famously parted ways to become the largest indepedent video game developer. This is a lot of talent to leave the company and yet they are still able to produce record breaking revenue. My long term thoughts are that the COD engine is due for a massive overhaul, which would put that game back in favour again. As for filling out the rest of the releases I have to assume that they might either try to acquire more developers or just ride the storm out and continue progress on current developments. The upcoming mobile game Diablo Immortal has the potential to tap into a wide audience and become a cash cow in the background. Even though the fans didn’t like the announcement, you have to imagine they have learned more about the mobile world since acquiring King and hopefully understand what works.

At their most recent SEC (securties and exchange commission) filing they discussed the current state and how they are very aware that they have not been able to consistently release good games and that they have been dependent on a few franchises. Its great to hear them show hubris but hopefully it isn’t just lip service and they are doing the necessary steps to put the company back on the right course.

This is a company that is a business and knows how to make smart decisions. They were smart enough to understand the needs for expansion and diversity and purchase both King and Blizzard.. COD needs a new engine or they will take a year off. Similar to how people were starting to hate the Assassins Creed series. We have recently seen a return to form in the fans and critics eyes after that series took a well needed look in the mirror, took a year off and came back stronger than ever. As for Blizzard, its been a while since we have seen a mainline title release so its only a matter of time before we start getting fruit from that tree.

Its hard to imagine things getting any worse than right now for ATVI, logically it seems like the only was is up because they are too big to fail.