Call of Duty: Infinite Warfare. IMAGE SOURCE:FLICKR USERBAGOGAMES.

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The largest video game publisher will report earnings after the market closes on Thursday, Feb. 9, and investors will get further insight into the strength of Activision Blizzard‘s (NASDAQ: ATVI) portfolio of games.

Did Call of Duty sales decline?

Activision’s biggest gaming brand on consoles is Call of Duty, and the first-person shooter’s latest release faced competition during the holiday season with Electronic Arts‘Battlefield 1. This happens every few years, depending on the timing of each companies’ releases.

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This year, Call of Duty: Infinite Warfaresales may have taken a hit, as a report suggests that sales dropped 50% over the previous year’s Call of Duty: Black Ops III. We will have more details when Activision reports earnings. One thing we already know is Call of Duty was the best selling franchise on consoles in 2016, and this is good news for Activision’s digital content business.

Expect digital revenue growth

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In the last quarter, Activision reported very strong growth in digital revenues of 43% excluding the King acquisition. In-game digital content was nearly $1 billion, or about two-thirds of total revenue, demonstrating how Activision is not dependent on big game releases to drive a strong quarter.

Other games that should drive strong digital revenue growth are Blizzard’s Overwatch and Activision’s Destiny. Along with Call of Duty, these games are designed for competitive gaming. Overwatch already has over 20 million registered players within its first year of release, making the online multi-player shooter the fastest selling intellectual property in Blizzard’s history. Given the popularity of Blizzard’s past games –World of Warcraft, Diablo, and Starcraft– this is a very significant milestone.

Activision has also been working on a Destiny sequel, which management believes will appeal to highly engaged players, broaden the game’s appeal to a bigger audience, as well as bring back any players who haven’t played in a while. The game publisher has adopted a new approach with the sequel that will allow for a more steady stream of additional content, allowing the company to better capitalize on the demand for additional in-game content.

Growth initiatives look promising

Beyond these games, investors will want to pay close attention to what management says about three particular growth initiatives that serve as major catalysts in the next few years.

The first is Overwatch League. This professional gaming league built around the Overwatch game has the potential for lucrative opportunities in broadcasting, licensing, and sponsorship. The league was announced by the company after the last earnings release, so this will be the first conference call where management will have the opportunity to shed more light on its plans in the eSports market.

Activision has also recently entered the realm of film and TV with a Skylanders TV show on Netflix. Also, King’s popular mobile game, Candy Crush, now has a live-action game show distributed by CBS and internationally by Lions Gate Entertainment. Film and TV is in its infancy for Activision, so investors will want to hear management’s take on the potential and opportunity in this market.

Finally, King has been testing advertising in Candy Crush. With nearly 400 million monthly active users, there is a lot of potential to monetize King’s mobile games with ads. Management expects advertising to contribute to earnings in 2017 with more profits to follow in 2018 as they scale up.

Opportunities abound

Activision is as well positioned for profitable growth as any company in the gaming industry. The ongoing growth of digital revenue is transforming the entire business model in a good way for all video game companies, and the opportunities in advertising and eSports are just getting started. Management is making efficient use of its intellectual property across different revenue channels, and this bodes well for long term investors.

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John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Netflix. The Motley Fool has a disclosure policy.

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