Activision's (ATVI) split with Bungie has cost them around $4 billion in market cap. Granted, this is a single day move and may not stick, but Wall Street isn't pleased Activision is shedding ties with the team behind the Destiny and Halo franchises. Bungie will assume full publishing rights and responsibilities for the Destiny franchise moving forward.
Management for Activision claims the launch for Destiny 2 was disappointing. While I don't disagree from a business side, this is a game I've actually played and enjoyed. My son and his friends play as well. Expansion and DLC has improved the game greatly, bringing it on par with the original and setting plans in place for Destiny 3. In the end, both companies may be better off apart, but the Destiny franchise appears far from done, so Activision is leaving a lot of revenue on the table. Estimates for 2019 sound like they will be reduced some $170 million while 2020 will see a loss of nearly $500 million in revenue for Activision. Perhaps that makes the $4 billion in market cap (roughly 10%) seem a bit harsh, but this will represent 8%+ of 2020's revenue that is gone. Those cuts may even be a bit conservative.
On the plus side, Activision extended their partnership with Netease a day earlier. It will now run through 2023 and cover World of Warcraft, Diablo, Hearthstone, and Overwatch. I'm most keen on Overwatch, despite Diablo being a favorite game. Overwatch is entrenched as an eSports favorite. Maintaining easy access in the Far East is necessary to The Overwatch League, a professional esports league controlled by ATVI.
Without the publishing, advertising, and time expenditures of the Bungie franchises, ATVI has a chance to continue to reinvent itself. The future of gaming lies in eSports, streaming, and mobile gaming. Franchises like Destiny and Halo provide a solid core, but they won't be an integral part of the current evolution in gaming.
The action in the stock this week is the most concerning aspect of the situation. A megaphone pattern is taking shape, which is bearish in nature. The $51 level has now established itself as strong resistance and I see no reason to be long below that level. While we are oversold, the bullish crossovers in secondary indicators will likely be wiped away by today's action come Monday.
Given its potential in eSports, I don't hate Activision Blizzard, but until the company shows a strong and profitable foothold in the industry along with strong growth, I don't really like it either. For now, I'll remain on the bench and look at other plays in the sector with less uncertainties.