How, then, does Activision maintain its edge over competitors such as Electronic Arts Inc. (NASDAQ:EA) and Take-Two Interactive Software, Inc. (NASDAQ:TTWO)? Rather than relying primarily on the initial sale of its games for profit as Electronic Arts Inc. (NASDAQ:EA) (with its many sports-centric titles) and Take-Two (with its Grand Theft Auto franchise) do, Activision enjoys massive, predictable streams of recurring subscription revenue from wildly popular games such as World of Warcraft, which boasted more than 9.6 million monthly subscribers at the end of 2012.
Naturally, then, even after all those buybacks and dividends, Activision Blizzard, Inc. (NASDAQ:ATVI) still has plenty of money left over to further invest in its world-class portfolio of game franchises, which, in addition to World of Warcraft, includes blockbusters such as Call of Duty, Starcraft, Skylanders, and Diablo III, the last of which broke PC gaming records by selling more than 12 million copies from its launch last May through the end of the year.
What’s more, Activision Blizzard, Inc. (NASDAQ:ATVI) continuously strives to ensure that its pipeline remains stuffed with up-and-coming cash-generating machines. As a result, the pipeline not only includes future iterations of its existing franchises such as its coming Call of Duty Online product aimed at the Chinese gaming market, but it also features ambitious new products such as Blizzard’s next-generation massive multiplayer online Titan project, which itself continues to spur countless rumors and fan sites well in advance of its official release. Further still, excitement for Activision’s new “genre-defining” Bungie Destiny MMO seems to be reaching a fever pitch as the studio continues to recruit “hundreds of thousands” of beta testers to explore the novel digital world.
Foolish final thoughts
If you’re looking for an 800-pound gorilla in the gaming world, look no further than Activision Blizzard (NASDAQ:ATVI). Not only does the company generate boatloads of cash, but its developers also consistently demonstrate an unrivaled ability to create awe-inspiring, forward-looking game franchises that ensure its place atop a mountain of seemingly talented challengers in the industry.
What’s more, even after the recent pop, shares of Activision Blizzard, Inc. (NASDAQ:ATVI) still trade at less than 15 times trailing earnings. If you back out its cash, its price-to-earnings ratio drops to 11. In the end, and with all things considered, I’m convinced that’s just too cheap to pass up.
The article 2 Big Reasons to Buy Activision Blizzard originally appeared on Fool.com and is written by Steve Symington.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive and owns shares of Activision Blizzard and Microsoft.
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