The rapid rise of Epic Games' Fortnite in eSports arenas may be leaving Activision Blizzard (ATVI) out in the cold.
Shares of Activision charted a deep decline on Friday, largely as a result of the company's split with Destiny developer Bungie, but the long-term implications of its eSports crown being dented by upstarts like Epic Games could pose a larger problem.
Keybanc Capital Markets analyst Evan Wingren warned that the game's ability to overtake the Activision-owned Call of Duty and Overwatch franchises could pose a long-term engagement risk and damage the secular story for the stock.
"Overwatch League slowing would negatively impact [Activision]," he warned in a potential bear case. "Fortnite could take more share from Overwatch."
The diminishing importance of a key property in a market that is projected to generate over $1.5 billion in just two years would be poor timing to say the least.
Analysts are still largely positive on Activision overall, but noted that the eSports story is far from a certain one.
"We believe Activision benefits from positive industry trends, strong brands, opportunities for synergies with King, and growth in mobile," BMO Capital Markets analyst Gerrick Johnson noted. "Our view on the stock is tempered by valuation, elevated investor expectations for upcoming game releases, and uncertainty regarding new eSports and entertainment business models."
The uncertainty is added to as the company is usurped as the headliner at eSports' biggest events.
For one, Fortnite headlined the World Series of eSports that touted a $115,000 grand prize, the richest prize in 2018 according to eSports Earnings.
Twitch as Kingmaker
The rise of Fortnite has also coincided with the rise of streamers.
Twitch, the Amazon-owned video game streaming platform, has been a solid driver of gaming popularity and made millionaires out of popular streamers like Ninja and Myth.
One of the key trends in Twitch stardom for these individuals, who become tastemakers for video games, is the massive viewership they garner playing Fortnite.
The importance of Twitch could only increase as Amazon (AMZN) enters the video game streaming space more forcefully and looks to become the key platform for gaming.
The Seattle-based behemoth is preparing to join the game with its own streaming video game service that would add to the company's Twitch holding and its suite that already offers Prime Video and Prime Music.
If Twitch becomes part of the central suite of gaming, it could mean streaming popularity and staying power will be more important than ever.
"Bottom line, Activision isn't going to be able to rely on old franchises like Call of Duty they could in the past," Action Alerts PLUS research analyst Zev Fima told Real Money. "Making a play to be the eSports industry leader was a good move but more than anything, Activision needs new innovation."
The innovation will be key to remaining top of mind for eSports competitors and streamers, who largely remain loyal to the company's key titles in Overwatch and Call of Duty, but can be moved to new games quickly, as Fortnite's meteoric rise has displayed.
The fact that new pipeline offerings, like new World of Warcraft games, appear to be at least a year off.
The Action Alerts PLUS team, which manages Jim Cramer's charitable trust, currently prefers Take-Two Interactive (TTWO) based on its more solid pipeline.
To be sure, Activision still operates Overwatch and Call of Duty titles that generate billions. The specific titles speak to the company's ability to stay relevant for many years.
However, as gamers' tastes shift quickly and can make a new king in an instant, Activision's stalled pipeline certainly comes at an inopportune time as it faces new rivals ready to take its crown in the eSports arena.