UBS: The company behind Overwatch is set to pop

Activision Blizzard, the interactive entertainment company behind smash-hit video game Overwatch, has seen it’s stock price take off since beating on earnings, raising its dividend, and announcing a two-year $US1 billion stock repurchase plan on February 9. Since then, Activision stock is up 28% to $US50.

That could just be the beginning, according to UBS analyst Eric J. Sheridan. In a note published March 29, Sheridan said the stock will reach $US57 in the next 12 months, and it’s partly because of Overwatch.

The game hit 25 million players in record time, and is not only monetized through the initial purchase cost of $US40-$US50, but also through in-game purchases called, “loots.” That’s a great way to increase revenue without having to foot the bill for launching a new game, according to UBS. Sheridan thinks that Activision can keep gamers interested in Overwatch well into 2018 with new content updates.

Thomas Tippl, COO of Activision Blizzard, noted in the company’s Q4 2016 earnings call:

“In Q4, MAUs rose to a new franchise high, as existing players stayed engaged and new players joined the fun. Showcasing its continued global appeal, Overwatch has players all over the world, including great success in Korea and China. It’s always difficult for Western companies to succeed there, and Overwatch’s popularity is testament to Blizzard’s unique ability to create globally appealing games.”

Gamers are also excited for the next Destiny instalment, set to be released in September of 2017. And for the first time ever, there are three active Call of Duty games out at the same time: Infinite Warfare, Black Ops III, and Modern Warfare Remastered.

All three have active players at a large scale, and all three are still being updated and revamped by Activision Blizzard. There were some complaints from players in 2016 & 2017 about changes to the series, but UBS believes that management has taken the critics seriously and will address these issues in the quarters to come.

Activision CEO, Eric Hirshberg addressed some of these issues during the Q4 2016 earnings call:

“Last year I don’t think we got that balance right. Infinite Warfare had a ton of great gameplay innovations that many of our fans appreciated and loved, but it also had a setting that didn’t appeal to all of our fans. The good news is, is that I’m excited to say that in 2017 we think we have this balance in perfect harmony with a game that our teams are incredibly passionate about, with a lot of great innovations, but that also has the traditional combat that we know our fans are going to love.”

Activision Blizzard also owns King Digital, the mobile game company famous for Candy Crush. Activision acquired King in November 2015 for $US5.9 billion. It looks like the investment will pay off, according to UBS, especially if advertisements pick up.

UBS said:

“With 355m MAUs (as of Q4 2016) and two of the top 10 highest-grossing titles in the US mobile app stores (for the 13th quarter in a row), King is among the most attractive platforms that remain under-monetized from a digital advertising prospective. The company started testing advertising in late 2016 and the feedback from both gamers and advertisers have been constructive and encouraging.”

Finally, it is important to remember that eSports is one of the fastest emerging sports in the world. Many millennials are just as happy watching someone else play video games as they are actually playing themselves.

Fortunately for Activision Blizzard, Overwatch is one of the most popular eSports games. UBS predicts that one day eSports will be a major part of every game producer’s revenue stream.

For a real-time Activision Blizzard chart, click here.

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