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Hella Fun. Hi everyone. Last weekend, I was utterly addicted to playing Diablo IV. There hasn’t been a gaming experience that hooked me in like this in years. I wasn’t alone. On Monday,
Activision Blizzard
(ticker: ATVI) announced more than one million players reached level 20 during Diablo IV’s closed three-day beta.
That’s a fantastic feat. It means many players willingly spent at least seven or more hours of their weekend after jumping through hoops to access the demo. It signals a tremendous demand for the game—likely beyond industry analysts’ wildest expectations. The forthcoming success will have significant positive ramifications for
Activision
Blizzard’s future and its shareholders.
Diablo IV is the fourth installment of the action-roleplaying series that pitches humans living in a world called Sanctuary against hellish demons. The title will be released for
Sony‘s
(SONY) PlayStation 4/5,
Microsoft’s
(MSFT) Xbox One, Xbox Series X/S, and PC on June 6—over a decade after Diablo III came out in 2012.
The game is an artistic masterpiece and a visual treat. Stunning images are seared into my mind, from treading through a snowy landscape to admiring the detailed artwork carved in the walls of the gritty underground dungeons. Internet message boards are alive with delight from gamers, with thousands of posts lauding its hauntingly beautiful aesthetic and animations.
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Beyond the presentation, Diablo’s main attraction is its enjoyable gameplay loop. Players constantly upgrade the skills and capabilities of characters, acquiring better weapons and gear after battling monsters—over and over. And firing lightning spells and fireballs fighting an array of monsters doesn’t get old.
Lately, there has been a growing preference from hard-core gamers toward the larger budget, higher production value games. Diablo IV is the quintessential AAA blockbuster and fits the bill.
Last month, Warner Bros. Games announced its latest Harry Potter game Hogwarts Legacy sold more than 12 million copies—roughly $850 million worldwide — in its first two weeks on the market. The title is likely to sell far more units over the next year.
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It’s evident to me Diablo IV is in Hogwarts Legacy territory in the level of interest and anticipation for the game—it may be significantly greater.
Wall Street is likely way too conservative in its forecasts. Earlier this month,
Stifel
and Benchmark forecast about 13 million units sold for Diablo IV this year. The game may sell more than double those numbers. The financial implications are enormous and could add up to an additional $1 billion of revenue above analyst estimates—with much of it falling to the bottom line.
What does that mean for Activision Blizzard investors? The main driver for the videogame publisher’s stock price is what happens with the regulatory approval process for
Microsoft
’s
$69 billion bid for the company.
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In December, the Federal Trade Commission sued to block the deal through its in-house administrative court. The European Commission and the U.K.’s Competition and Markets Authority are also reviewing the deal.
Late last year, Barron’s reiterated Activision Blizzard shares look attractive independent of the merger. The company’s stockholders will get $95 a share if the transaction goes through, equating to a robust double-digit return. If it doesn’t, the publisher’s underlying fundamentals have improved on the back of the record-breaking release of its last Call of Duty game and the coming return of Diablo.
Activision Blizzard shares trade at a reasonable 21 times the expected earnings for 2023. Diablo IV’’s potential outperformance increases the likelihood of large upward earnings estimate revisions, which historically have correlated with rising stock prices.
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The significance of the Diablo IV boon shouldn’t be understated. Activision Blizzard should realize it owns one of the most valuable franchises in the industry and monetize it accordingly. There is no reason the publisher shouldn’t make more Diablo games—perhaps every two years.
That would be a win-win for players and the company. With the title’s already built platform and game engine, making more sequels shouldn’t be too challenging.
In June, millions of gamers will enjoy exploring Diablo IV’s immersive world of more than one hundred dungeons. Both Activision Blizzard investors and players will be smiling about it.
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Write to Tae Kim at [email protected] or follow him on Twitter at @firstadopter
