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Can Activision-Blizzard (ATVI) Profit From ESports Leagues?

Published 06/29/2016, 07:00 AM
Updated 07/09/2023, 06:31 AM

The video game industry has grown considerably in the last decade, but can new ventures like eSports leagues benefit companies like Activision Blizzard Inc. (NASDAQ:ATVI) ?

On Tuesday, Activision Blizzard Inc. subsidiary Activision Publishing announced a third DLC (downloadable content) pack for their bestselling console video game, Call of Duty Black Ops III. Call of Duty is one of the most well-known franchises in the gaming industry, with total franchise sales of over 200M units to date according to Statista. As PricewaterhouseCoopers forecasts, the U.S. video game industry is expected to continue its rapid growth by 30% to $19.6B by 2019.

Although sales are mostly made up of consoles, games and online micro transactions, ATVI is venturing into other territories as well. ATVI released the Warcraft movie (based on their World of Worldcraft game franchise) on June 10th, which as our team points out has turned a profit.

However, the venture to watch is the rise of eSports. Depending on how well it is executed, we could see eSports rise to the level of established sports like basketball and soccer, and very soon too.

Let’s take a look at what kind of an impact eSports could have on ATVI stock.

Wait, What are eSports?

A considerably new venture, eSports are defined as a form of competition facilitated by electronic systems. Currently, these are mainly played on such mediums as the PC, Sony’s (NYSE:SNE) Playstation 4 and Microsoft’s (NASDAQ:MSFT) Xbox 1. Smaller fan groups also compete on Nintendo’s (OTC:NTDOY) Wii U, DS family and old NES systems.

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eSports leagues have their own professional teams, many of which now function in ways not unlike your favorite NBA or NFL franchise. China’s largest internet company Tencent Holdings (OTC:TCEHY) owns Riot Games, creators of the wildly popular League of Legends. The game has an eSports league with seasons, brackets, tournaments, an annual all-star event, and even fantasy leagues where participants can draft competitors and make their own teams.

Sound familiar?

How Could This Serve as a Benefit?

As our team notes, the eSports industry is quite lucrative, with a current value of $500M and over 130M people following various tournaments from around the world. It has also drawn plenty of attention, with Disney (NYSE:DIS) subsidiary ESPN and Yahoo! Inc. (NASDAQ:YHOO) dedicating specific subdivisions of their websites to covering the eSports world.

ATVI’s Call of Duty is already on the eSports circuit, with the introduction of the World League (their NBA equivalent) this year as well as various regional tournaments, with a total prize pool of $3M. It all culminates in the yearly Call of Duty World Championship in the Fall, where teams from nearly every continent compete for a $1.6M prize pool.

eSports draw tremendous viewership, with potential to grab even more. Last year’s Call of Duty World Championship drew average concurrent viewership numbers of 60-80,000 people. However, even this pales in comparison to League of Legends, which drew 36 million unique viewers over the course of their four week World Championship total, and peak concurrent viewership of 14 million during the final match.

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According to Fortune, the Call of Duty franchise pulls in about $1.25B in annual revenue, while the eSports world overall generated $200M in 2014 alone. It is expected that these numbers will rise to about $465M by as soon as 2017.

On May 24th, ATVI released their new game Overwatch. Analysts originally expected the game to have an initial player count of 5M, however it has dramatically outperformed, already double that at 10M unique players. ATVI is considering creating a league for this well, which will serve as yet another source of revenue.

Considering ATVI has been performing extremely well, with an average EPS surprise of 61.5% and projected EPS growth of 37.4% for this fiscal year, this diversification bodes well. Here we can see how ATVI has almost always beaten earnings expectations over the last four years.

ACTIVISION BLZD Price and EPS Surprise

ACTIVISION BLZD Price and EPS Surprise | ACTIVISION BLZD Quote

Is This Sustainable?

All signs point to eSports only continuing to grow. Corporate sponsorships, increasing viewer count, advertisement revenue, crowd funding, consumer spending, and media coverage are all putting eSports on track for massive continued success.

So long as ATVI continues to support its video game releases and continue investment into their eSports division, it is highly unlikely that eSports will disappear anytime soon.

Bottom Line

Although competitive video gaming is not yet a household name, it appears that it will be very soon. What was once completely unthinkable less than a decade ago is now very much a reality, and companies like ATVI are lined up to profit from it. Investors should keep a keen eye on ATVI and towards the world of eSports in general, as it is something that will continue to pop up moving forward.

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Activision-Blizzard Inc. currently sits at a Zacks Rank #3 (Hold).



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