ATVI - Activision Blizzard

[CorpRaider]

I think COD is going to be big this time.  Seems like some good buzz/early reviews.

[Foreign Tuffett]

I think COD is going to be big this time.  Seems like some good buzz/early reviews.

 

Yeah, I agree. Also facing a weaker competitive slate (no Battlefield this year, etc).

[Foreign Tuffett]

A friend who's a causal gamer (and knows I follow ATVI) just sent me the transcript of messages back-and-forth with Blizzard customer support. I don't have his permission to post the whole thing, but here's the Cliff Notes version:

 

Him: I wasn't able to redeem a promotion for some reason. Can you help?

 

Them: You aren't eligible for the promotion since you participated in a different promotion 3 months ago, but you can give your promotion code to a friend if you'd like

 

Him: How was I to know that participating in that promotion would make me ineligible to participate in this new promotion? There's no way I could have known that and it also strains credulity to interpret the terms and conditions like that

 

Them: Basically just repeated the content of their last message

 

Him: I feel like I'm being defrauded (a purchase was required to redeem the promotion). I am done with ATVI products forever if you're going to do nothing to resolve this

 

Them: We admit that the promotion was confusing, but we can't do anything to help you

 

Him: Explains in intricate detail that Blizzard's interpretation of the promotion isn't feasible and defies both logic and common sense

 

Them: We have read all your messages and "understand where you're coming from." However, there's literally nothing we can do as we don't have the ability/authority to do anything about this even though you are right. If you'd like you can go on the Blizzard forums and leave a comment because the marketing staff reads the forums and might see your comment and change how they do promotions in the future.

 

I haven't really captured the zaniness of the entire ordeal, but it basically reads like Blizzard's customer support is composed entirely of overly cheerful Kafka enthusiasts who are wholly unable to interact with other parts of the company. Note that the promotion was for a 100% digital item, so the cost to Blizzard to deliver it would have been literally zero.

 

TLDR version: ATVI shouldn't have laid off hundreds of customer support staff.

[Jurgis]

I haven't really captured the zaniness of the entire ordeal, but it basically reads like Blizzard's customer support is composed entirely of overly cheerful Kafka enthusiasts who are wholly unable to interact with other parts of the company. Note that the promotion was for a 100% digital item, so the cost to Blizzard to deliver it would have been literally zero.

 

http://thenoobcomic.com/comic/312/

[5xEBITDA]

Bad customer support is frustrating!

 

I agree that Call of Duty looks pretty strong this year and opens some short-term trading opportunities, but GME may be the better way to execute especially after the ATVI run up to mid-50s.

[Foreign Tuffett]

Bad customer support is frustrating!

 

I agree that Call of Duty looks pretty strong this year and opens some short-term trading opportunities, but GME may be the better way to execute especially after the ATVI run up to mid-50s.

 

Even with the recent insider buying, I wouldn't touch GME here @ ~$5.30. Q2 earnings were very poor. Beyond closing lots of stores I've yet to see many good ideas from the new management team. Retro stores and e sports are distractions and COD MW exceeding expectations isn't going to bail out a business model that's in secular decline.

 

Agree with you about ATVI. Market seems like it has been basically efficient in running the stock up on (1) WOW Classic being a bigger success than nearly anyone anticipated (2) COD MW looking very solid against relatively weak competition (3) some other incremental good news like Overwatch coming to Switch

[5xEBITDA]

Bad customer support is frustrating!

 

I agree that Call of Duty looks pretty strong this year and opens some short-term trading opportunities, but GME may be the better way to execute especially after the ATVI run up to mid-50s.

 

Even with the recent insider buying, I wouldn't touch GME here @ ~$5.30. Q2 earnings were very poor. Beyond closing lots of stores I've yet to see many good ideas from the new management team. Retro stores and e sports are distractions and COD MW exceeding expectations isn't going to bail out a business model that's in secular decline.

 

 

I think the stock is good for a pop on some comps driven by a solid Call of Duty but I mostly like the angle of the Company giving in to the buyback proposal. It is definitely a non-fundamental trade, though, my main position is short the bond.

[glorysk87]

all i know is that the new call of duty is fun as hell and i will be spending many hours playing it

[Foreign Tuffett]

Bad customer support is frustrating!

 

I agree that Call of Duty looks pretty strong this year and opens some short-term trading opportunities, but GME may be the better way to execute especially after the ATVI run up to mid-50s.

 

Even with the recent insider buying, I wouldn't touch GME here @ ~$5.30. Q2 earnings were very poor. Beyond closing lots of stores I've yet to see many good ideas from the new management team. Retro stores and e sports are distractions and COD MW exceeding expectations isn't going to bail out a business model that's in secular decline.

 

 

I think the stock is good for a pop on some comps driven by a solid Call of Duty but I mostly like the angle of the Company giving in to the buyback proposal. It is definitely a non-fundamental trade, though, my main position is short the bond.

 

Help me understand why you think GME management is going to start buying back shares? If you are wrong and they don't buyback any shares good chance you lose on both sides of trade.

 

Also, ATVI just put of press release that COD MW beta is largest in franchise history

 

https://investor.activision.com/news-releases/news-release-details/call-duty-modern-warfare-multiplayer-beta-biggest-ever-franchise

[5xEBITDA]

Bad customer support is frustrating!

 

I agree that Call of Duty looks pretty strong this year and opens some short-term trading opportunities, but GME may be the better way to execute especially after the ATVI run up to mid-50s.

 

Even with the recent insider buying, I wouldn't touch GME here @ ~$5.30. Q2 earnings were very poor. Beyond closing lots of stores I've yet to see many good ideas from the new management team. Retro stores and e sports are distractions and COD MW exceeding expectations isn't going to bail out a business model that's in secular decline.

 

 

I think the stock is good for a pop on some comps driven by a solid Call of Duty but I mostly like the angle of the Company giving in to the buyback proposal. It is definitely a non-fundamental trade, though, my main position is short the bond.

 

Help me understand why you think GME management is going to start buying back shares? If you are wrong and they don't buyback any shares good chance you lose on both sides of trade.

 

Also, ATVI just put of press release that COD MW beta is largest in franchise history

 

https://investor.activision.com/news-releases/news-release-details/call-duty-modern-warfare-multiplayer-beta-biggest-ever-franchise

 

The bond trades at par and is an asymmetric short - if I'm wrong all I lose is my carry. If they give in to the activists and buy back stock the bond is likely to crash to at least mid-80s with likely further downside, I like it mainly due to the risk/reward regardless of the % likelihood of it working out. The stock leg is more eh.

[Foreign Tuffett]

COD MW: "had more than $600 million in sell-through worldwide in its first three days of release."

 

https://investor.activision.com/news-releases/news-release-details/call-duty-modern-warfare-delivers-blockbuster-opening-weekend

 

Compare to 2018's COD BOPS 4: "sold more than $500 million in sell-through worldwide in its first three days of release"

 

https://investor.activision.com/node/31961/pdf

 

Compare to Compare to 2017's COD WWII:"surpassed more than $500 million in sell-through worldwide in its first three days of release"

 

https://investor.activision.com/news-releases/news-release-details/call-duty-wwii-scores-over-half-billion-dollar-opening-weekend-0

 

 

The market was probably pricing in a strong launch, as I've seen ~20 million in total unit sales estimates several times. I doubt the game ever gets there.

[rogermunibond]

At an ASP of $48 they're close to 12.5 million units.  I've seen 20-22M units from various analysts.

 

You're expecting the sales to cliff dive over the holidays?

 

If anything various retail surveys seem to indicate the excitement for COD MW is pretty high (I'm thinking the Piper Jaffary Teen retail survey for example).

[Foreign Tuffett]

At an ASP of $48 they're close to 12.5 million units.  I've seen 20-22M units from various analysts.

 

You're expecting the sales to cliff dive over the holidays?

 

If anything various retail surveys seem to indicate the excitement for COD MW is pretty high (I'm thinking the Piper Jaffary Teen retail survey for example).

 

No, you are right. I misread a chart. COD WWII did something like 19.82M in sales as of ~ two years after its initial release. Given COD MW is off to a stronger start, it will probably hit 20M in sales. I don't have any  reason to believe that the strong launch momentum won't continue.

[Patmo]

Me: LoL is an old game and all games have a limited life, Rito will need to come out with new games soon

Genius: u DiDnT dO Ur rEsEaRcH, NERD  8)

Rito: Hey guys, we're happy to announce we're working on a half dozen AAA titles!

Also Rito: Hey guys, we set up a publishing co to collaborate with independent developers so we can churn out lots of single player games!

Genius: SurprisedPikachu.jpg

 

[Foreign Tuffett]

Last night Blizzard delayed "Warcraft 3: Reforged" from this Q to next. This could* result in ATVI missing its Q4 guidance.

 

Lo and behold, this morning ATVI puts out the below press release:

 

https://investor.activision.com/news-releases/news-release-details/call-duty-modern-warfare-1-most-played-call-duty-multiplayer

 

Seems like a transparent attempt to offset bad news by providing some good news.

 

 

* I stress could because ATVI seems to always guide conservatively, so it conceivably still meet guidance

[Foreign Tuffett]

5xEBITDA I just went back and read your (very smart) post from January. I was wondering if you had any thoughts on how successful this year's COD has been?

 

Back then you wrote:

"Call of duty isn't going to really pick back up unless you totally overhaul things and make it more customer friendly"

 

Removing the $40 "Season Pass" and making all maps and game modes free was a pretty consumer friendly move, right? It, along with cross platform play, appears to have increased player engagement.

 

What I don't understand about the COD franchise in general is why players are so willing to pay for cosmetic items despite the life cycle of each game being only ~1 year.

 

 

Edited because I butchered a username

[5xEBITDA]

5xEBITDA I just went back and read your (very smart) post from January. I was wondering if you had any thoughts on how successful this year's COD has been?

 

Back then you wrote:

"Call of duty isn't going to really pick back up unless you totally overhaul things and make it more customer friendly"

 

Removing the $40 "Season Pass" and making all maps and game modes free was a pretty consumer friendly move, right? It, along with cross platform play, appears to have increased player engagement.

 

What I don't understand about the COD franchise in general is why players are so willing to pay for cosmetic items despite the life cycle of each game being only ~1 year.

 

 

Edited because I butchered a username

 

Yeah, I mean all the points you outlined are good reasons why this years COD has been successful. Modern Warfare threw away a lot of the futuristic, space stuff they had been doing and went back to their roots in a stripped down type of way which people enjoyed. I know that player base has for a long time felt like the developers didn't listen to them, so that was a really good step in the right direction.

 

Whats interesting is that these preferences go in cycles and its tough for publishers to time them perfectly. Stripped down, old school type of Modern Warfare is clearly what people have been asking for and want to play right now, but that preference can change and will need to be responded to. There was a time when people were asking for futuristic games - there was a reason why ATVI went in that direction in the first place - they just let it overstay its welcome. So who knows how long this current cycle will last, its just tough to time.

 

Re: why do people buy this stuff if it is only a 1 year game - well, why do people buy new iPhones when they are just going to buy the new version next year? Same with clothes, etc? Its because they want to have the latest and greatest and show off to their friends. This is especially important when you're playing multiplayer or even streaming to an audience. Everyone reaches the highest level cap, that is sort of a given, and most people can go on to earn good enough kill streaks to be entertaining, so the main differentiation is to have special armor, weapons, cosmetic things to show that you either have more money than others or spent a long time completing a certain check list to unlock something.

 

Tl;dr - vanity.

[CorpRaider]

There is also a bit of a network, in my opinion.  You can't just sit there playing COD from two years ago if you want to play with friends (or even just people in North America or Europe with good connections). 

[Foreign Tuffett]

 

Whats interesting is that these preferences go in cycles and its tough for publishers to time them perfectly. Stripped down, old school type of Modern Warfare is clearly what people have been asking for and want to play right now, but that preference can change and will need to be responded to. There was a time when people were asking for futuristic games - there was a reason why ATVI went in that direction in the first place - they just let it overstay its welcome. So who knows how long this current cycle will last, its just tough to time.

 

Re: why do people buy this stuff if it is only a 1 year game - well, why do people buy new iPhones when they are just going to buy the new version next year? Same with clothes, etc? Its because they want to have the latest and greatest and show off to their friends. This is especially important when you're playing multiplayer or even streaming to an audience. Everyone reaches the highest level cap, that is sort of a given, and most people can go on to earn good enough kill streaks to be entertaining, so the main differentiation is to have special armor, weapons, cosmetic things to show that you either have more money than others or spent a long time completing a certain check list to unlock something.

 

Tl;dr - vanity.

 

You are entirely right, but don't you think the fact that COD basically resets each year discourages players from purchasing cosmetic microtransactions vs open-ended GaaS games like Fortnite/Overwatch/RS Siege/etc?

 

More generally, I have a tough time understanding how COD gets away with being the only non-sports franchise that releases a "sequel" every year. I think the franchise may be somewhat over earning, but it's impressive that the core demographic shells out $60+ year in and year out.

 

There is also a bit of a network, in my opinion.  You can't just sit there playing COD from two years ago if you want to play with friends (or even just people in North America or Europe with good connections). 

 

Yeah that's true, but the network resets and has to be built anew each year, right? If next year's COD game bombs then the "everyone is playing it" network effect weakens substantially very quickly

 

[glorysk87]

 

Whats interesting is that these preferences go in cycles and its tough for publishers to time them perfectly. Stripped down, old school type of Modern Warfare is clearly what people have been asking for and want to play right now, but that preference can change and will need to be responded to. There was a time when people were asking for futuristic games - there was a reason why ATVI went in that direction in the first place - they just let it overstay its welcome. So who knows how long this current cycle will last, its just tough to time.

 

Re: why do people buy this stuff if it is only a 1 year game - well, why do people buy new iPhones when they are just going to buy the new version next year? Same with clothes, etc? Its because they want to have the latest and greatest and show off to their friends. This is especially important when you're playing multiplayer or even streaming to an audience. Everyone reaches the highest level cap, that is sort of a given, and most people can go on to earn good enough kill streaks to be entertaining, so the main differentiation is to have special armor, weapons, cosmetic things to show that you either have more money than others or spent a long time completing a certain check list to unlock something.

 

Tl;dr - vanity.

 

You are entirely right, but don't you think the fact that COD basically resets each year discourages players from purchasing cosmetic microtransactions vs open-ended GaaS games like Fortnite/Overwatch/RS Siege/etc?

 

More generally, I have a tough time understanding how COD gets away with being the only non-sports franchise that releases a "sequel" every year. I think the franchise may be somewhat over earning, but it's impressive that the core demographic shells out $60+ year in and year out.

 

There is also a bit of a network, in my opinion.  You can't just sit there playing COD from two years ago if you want to play with friends (or even just people in North America or Europe with good connections). 

 

Yeah that's true, but the network resets and has to be built anew each year, right? If next year's COD game bombs then the "everyone is playing it" network effect weakens substantially very quickly

 

In my conversations with them, the company has very lightly suggested that if the battle pass sees high adoption rates they'd seriously think about making COD a perennial game like Fortnite or League, and update it periodically rather than developing a new game from the ground up every year. That would create a much better environment for the COD esports league as well.

[Foreign Tuffett]

In my conversations with them, the company has very lightly suggested that if the battle pass sees high adoption rates they'd seriously think about making COD a perennial game like Fortnite or League, and update it periodically rather than developing a new game from the ground up every year. That would create a much better environment for the COD esports league as well.

 

I have a difficult time believing that the company is intentionally putting that message out there, as management said something very different on Q2 call:

 

Michael Ng

"Hi, thank you very much for the question. I was just wondering if you could talk a little bit

more about the future of the Call of Duty franchise. Specifically, it seems that with the

focus toward Call of Duty titles that might have the potential to sustain over multiple years.

We may be going toward a business model that it doesn't necessarily involve annual

releases but instead a few franchises that our perpetual live service gains. Would that be

consistent with what's your vision for the future of Call of Duty, it looks like? Thanks."

 

Robert Kostich

"Hi Mike, it's Rob. Thanks for the question and it's a good one at that because we're

taking some important steps to grow the franchise overall, and there's probably a few

things I mentioned here. Now obviously Call of Duty mobile, it's going to be an ongoing

live services title. We're building a huge stream of content and events, keep our players

around the globe haven't fun for the long haul on this one. But if I look overall on the

console and PC side, we do still see new launches as a critical part of our future.

These new releases are, have been and continue to be a huge engagement drivers for

our community because they bring a robust set of new experiences to our fan. So that

said, obviously we want to also build player engagement here over time as well. We're

very committed on this front. You're going to start seeing that in a few ways, first with

modern warfare.

We're going to have cross platform play as Coddy mentioned and we're also not having a

season pass. Now this is important and we're doing this because we want to build one

massive community where everyone can come together and have fun each and every day

and to support that community as we go forward.

We're investing significant resources post launch content events and new ways to play

that we think fans are going to really love. So what I'd say is, we're really looking forward

to the launch of modern warfare, it is a great game. And we believe it's the beginning of an

incredible journey for our community. Thanks."

 

Coddy Johnson

"Hey, Mike. It's Coddy. If I might just jump on to the question, just to talk more broadly, not

just Call of Duty, but also the rest of the franchises in our portfolio, because I think the

question is broader really about how we think about live services. And we recognize that

the key to player engagement is really great ongoing and frequent content coupled with

like core game play features and services that really keep the players engaged.

And you've heard that today, the investment that we're putting against that initiative and

the resources we're bringing to bear and earlier results we're seeing, I really meant, to

think about our franchises as live services. That said, we do see across many of our

franchises major upfront launches as a very effective and important way to refresh the

franchise, to drive innovation, to reach out to new players, to expand the community and

so in the resources there are putting into our franchises.

As you see in the additional investment, we think we can get the best of both worlds. We

can get live services an ongoing way and then major upfront launches to really drive

innovation and to refresh the franchise and expand the community.

So you'll see, you'll continue to see big launches from us, and we're looking forward to

telling you more about those in due course."

 

[CorpRaider]

Yeah, no doubt it's not super-strong, due to the annual decision to re-up, but players are reluctant to switch due to familiarity with the controls, physics, etc...in my experience/observation.  Battlefield one was like 10X better than COD for a couple of years and it was like pulling teeth to get people to switch. 

[glorysk87]

 

I have a difficult time believing that the company is intentionally putting that message out there, as management said something very different on Q2 call:

 

 

Just telling you what I've heard. They could very well have been just blowing steam.

[Jurgis]

They could very well have been just blowing steam.

 

Actually Steam is blowing Battle.net

 

;)

[deepdiving]

New Multiplayer Highs in Hours Played, Hours per Player and Average Daily Players in First 50 Days of Release.

 

Through November 2019, Modern Warfare Became the Top-Selling Premium Game of 2019 in the U.S. Year-To-Date, Also Crossed $1 Billion in Worldwide Sell-Through

 

Largest Free Content Offering in Franchise History Continues today with Release of New Multiplayer Maps, Gunfight Maps, Special Ops Mission and Game Modes.

 

https://investor.activision.com/news-releases/news-release-details/call-duty-modern-warfare-1-most-played-call-duty-multiplayer

 

The company has been making lots of progress on capital expenditure: lots of fat if cut and resources are directed to where they are most needed: content development of owned IP + getting into Mobile.

 

For the business, this is not dissimilar to FB's move to mobile: an uncertainty that led to a new company. I cant wait to see what happens when they get OK to launch in China via Tencent distribution.

 

Another thing I find exciting is Advertizing: With 100 Million $ in Advert Rev expected in 2019, and so much inventory,  this high margin business could become something interesting.

 

They have the eyeballs and time spent to do it, take a deliberate slow approach with it.