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Why Is Digital Revenue Important for Activision Blizzard?

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Shift toward digital products

Like other product categories, the gaming space has also seen a transition toward digitalization. In November 2015, Activision Blizzard (ATVI) announced the signing of a definitive agreement to acquire King Digital Entertainment (KING), a major player in the online gaming sector. This acquisition was completed in 1Q16.

In 3Q16, Activision Blizzard’s digital revenues accounted for 85.7% of its total revenues—an increase from 63.5% in 3Q15 and 72.7% in 2Q16. Digital revenues rose to ~$1.1 billion in 2Q16, touching the billion-dollar mark for the first time during a quarter. In 3Q16, the company’s digital revenue was ~$1.3 billion.

In 3Q16, Electronic Arts’s (EA) digital revenues accounted for 63% of its GAAP[1. generally accepted accounting principles] revenues.

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Rising revenues in 3Q16

Activision’s revenues rose 63% YoY (year-over-year) in 3Q16 to ~$1.6 billion from $960 million in 3Q15, primarily driven by the acquisition of King Digital. King Digital accounted for 29.4% of Activision’s total revenue in 3Q16.

Activision’s CFO, Dennis Durkin, stated during the company’s 3Q16 earnings call, “Digital momentum continued to be a strong business driver for yet another quarter, producing record Q3 digital revenues of $1.3 billion, growing 114% year-over-year and 18% quarter-over-quarter.”

Analysts estimated that the firm could post revenues of ~$1.6 billion for the third quarter, which ended in September 2016, with a low estimate of ~$1.5 billion and a high estimate of ~$1.7 billion.

The company’s earnings per share (or EPS) were estimated to be $0.42, with a high estimate of $0.48 and a low estimate of $0.40.

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