Activision (ATVI - Free Report) has become a dominant name in the esports space, courtesy of its massively successful Overwatch League. The company is now set to launch another esports league based on its hugely popular franchise Call of Duty.
Reportedly, the company has expanded the number of teams competing in its upcoming city-based Call of Duty league to seven. Per engadget, the two new teams will represent Los Angeles and Minnesota. Currently, other teams in the league represent Atlanta, Dallas, New York, Paris and Toronto.
Immortals Gaming Club, which owns Los Angeles Valiant in the Overwatch League, will operate the Los Angeles team in the upcoming Call of Duty League. The Minnesota team will be operated by Wise Ventures, founded by Minnesota Vikings owners, Mark and Zygi Wilf.
However, Activision doesn’t expect the upcoming Call of Duty League to contribute significantly to revenues in 2019. This prompted it to reiterate net bookings and revenues outlook. The company currently expects non-GAAP revenues of $6.03 billion and bookings of $6.3 billion for 2019.
Shares have returned 2% on a year-to-date basis compared with the industry’s growth of 13.4%.
Esports — A Major Growth Driver
Per Newzoo, global esports revenues are expected to increase 26.7% to $1.1 billion in 2019. By 2022, the esports market will be worth $1.8 billion. Moreover, average revenue per fan is expected to grow to $6.02 by 2022.
According to emarketer, which cited a Goldman Sachs report, total esports revenues are expected to reach $2.96 billion by 2022 from $869 million in 2018.
These data open up significant opportunities for video game developers, particularly Activision, post Overwatch League’s success.
Activision sold the first slot of teams in its Overwatch League for $20 million. The company expanded the league this year (20 teams) and the new teams reportedly paid fees between $30 million and $60 million. Teams in the upcoming Call of Duty League are rumored to have paid approximately $25 million.
Activision generated revenues of almost $500 million from the 25 team slots that it had sold for the Overwatch League and the upcoming Call of Duty esports league. The company also generates significant revenues from broadcast rights, sponsors and licensees.
Notably, strong growth in viewership has benefited Activision. Overwatch’s viewership in the current season has increased more than 30% on a year-over-year basis. Improving consumer engagement has helped the company attract sponsorships from Anheuser-Busch InBev, Coca-Cola and State Farm.
Activision Gaining Competitive Edge
Activision’s esports leagues are based on well-established franchises. Hence, the company had to spend less time and effort in making them popular among hardcore gamers and enthusiasts.
Moreover, the success of the company’s esports initiative has provided it a competitive edge over its closest peers — Electronic Arts (EA - Free Report) and Take Two Interactive (TTWO - Free Report) .
EA currently has limited presence in the esports space, while Take Two has been cautious in its approach despite its deal with NBA. Notably, Take Two has been conducting an NBA esports tournament for the last two years.
Zacks Rank & Another Key Pick
Currently, Activision has a Zacks Rank #2 (Buy).
Hasbro (HAS - Free Report) , which sports a Zacks Rank #1 (Strong Buy), is a stock worth considering in the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
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