Activision: Higher 2018 Analyst Estimates Driven by King Advertising and Digital Transactions

Investors are bullish on Activision due to its many growth drivers. In particular, two of the main reasons for optimism lie in King Digital, which Activision acquired early last year, and the industry’s shift towards digital transactions from physical transactions.
As it relates to King, the company is in the early stages of testing advertising among its user base. Early results suggest that users are responding well and advertisers are seeing strong conversion rates. Analysts are particularly bullish on the advertising opportunity, and Visible Alpha’s consensus estimates show 12% growth in 2017 and 15% growth in 2018.

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Additionally, analysts are bullish on the growing revenue shift towards digital transactions for both the game itself as well as in-game transactions. These transactions carry much higher gross margins and also introduce additional opportunities to monetize its assets. While many analysts do not explicitly model digital revenue, analyst bullishness can be seen in the non-GAAP gross margin estimates, where analysts are forecasting significant gross margin gains by 2018 (with a pause in 2017 due to lower sales after a very successful 2016).