Game On for Activision Shares

Activision Blizzard (NASDAQ: ATVI ) is continuing its strong finish to 2010 — a welcome relief to investors. The video game maker said Monday that Cataclysm, the latest edition of its computer-based megahit World of Warcraft series, sold 3.3 million copies in its first 24 hours of release last week. That beat the first-day sales by the games predecessor, Wrath of the Lich King , which sold 2.8 million copies in the first 24 hours of its release two years ago. But Cataclysm also is the second first-day multimillion-seller for Activision in less than a month. The first, the company’s Call of Duty: Black Ops game, sold 5.6 million copies on its first day of release on Nov. 9. One could forgive ATVI shareholders for being anxious for the second half of 2010, as shares had shown an inability to move higher — and stay there — since the stock market’s post-financial crisis run-up in early 2009.  Before the release of Black Ops in November , ATVI was trading at around $11 — almost exactly where it was this time last year.  The company recovered during its third quarter, thanks in large part to PC game Starcraft II: Wings of Liberty released for Microsoft (NASDAQ: MSFT ) Windows PCs and Apple Inc. (NASDAQ: AAPL ) Mac computers in July, selling 1 million copies in its first 24 hours and 3 million games during its first month.  The company’s unexpected success in that quarter, however, was a surge in World of Warcraft sales that brought the game’s worldwide subscriber base up to 12 million. Whilethe surge was in part fueled by Wrath of the Lich King’s release in China, it was still unexpected growth preceding last week’s release of Cataclysm worldwide. Released at the end of 2004, World of Warcraft has remained the tent pole of Activision’s video game business. While the company has had several industry-defining successes over the past half decade — the Call of Duty franchise earned more than $3 billion between 2003 and 2009 — none have been as enduring as Warcraft . And no other game continues to provide as much revenue after the initial point of sale. Unlike ATVI’s billion-dollar Guitar Hero franchise, Warcraft’s market can never become saturated since the game itself is an ever-evolving commodity. It’s what is known as a massively multiplayer role-playing game, a persistent game played simultaneously by consumers all over the world who pay $14.99 a month to play. (Subscription plans vary outside the U.S.) While the base game has been in place since 2004, it has been augmented with secondary releases, or “expansions,” that redefine the game’s features and introduces new content. Even though ATVI shares are currently trading at about $12, and have climbed about 7% since the release of Call of Duty: Black Ops – near their 52-week high of $12.58 — the stock still could be a smart buy. Shareholders who held on through a tumultuous 2010 are already recovering, and new investors could see significant returns based on the fourth-quarter success of both Cataclysm and Black Ops . It’s likely that Cataclysm has performed even better than reported — the 3.3 million-game sales figure is based on retail sales only, not digital downloads. Considering that BattleNet, the company’s online home for Warcraft products online,is one of the top five digital storefronts for PC and Mac games, it’s reasonable to assume that a sizable chunk of release revenue is absent from this announcement. Still, new buyers should keep a close eye on the company’s activity early next year. While a new Starcraft II release is planned for next year as well as a new sequel to its Diablo game series, it’s not yet clear when they’ll be unveiled. ATVI should remain healthy into 2011, but traders may want to consider lightening up on the stock if schedule delays begin to pop up. As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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