Analyst: StarCraft II May Be One Of Activision’s ‘Most Profitable Titles’
July 28, 2010
With "palpable" worldwide excitement over yesterday’s release of Activision Blizzard’s StarCraft II, one analyst noted the exceedingly strong profits that the game can potentially generate.
Signal Hill analyst Todd Greenwald said in a Wednesday research note, "[StarCraft II] already stands to be one of Activisions most profitable titles, given that it is on the PC (no $8-$9 [console] hardware royalty), it is retailing for $60, not $50, and it should sell a large portion digitally through Battle.net, foregoing the 20 percent royalty paid to retailers."
Greenwald added, "We believe StarCraft II can approach 50 percent operating margins and contribute at least [7 cents] of earnings to Q3 results." That’s compared to a 39 percent overall operating margin from all of Activision Blizzard — which also publishes Call of Duty and Guitar Hero — during the March 2010 quarter.
The analyst also said that he believes that Blizzard’s accounting practices also help accentuate profits. Unlike parent Activision, which doesn’t expense development costs of a years-long project until the period a game is released, Blizzard expenses all of its costs as they are incurred, Greenwald said.
"This means that despite being in development for four to five years, there are not four to five years of development costs about to hit [Activision]s gross margin (as was the case for Take-Twos Red Dead Redemption) — the vast majority of StarCraft II‘s development costs have already been expensed, which makes the margin impact of StarCraft II even more positive."
Greenwald said that he expects the game to drive a strong Q3 outlook for Activision Blizzard, with a "rough estimate" of 5-6 million units of StarCraft II sold this year "highly achievable." He added that Activision management will likely try to stay conservative with Q3 guidance, projecting that the company will give quarterly guidance greater than Signal Hill estimates of $930 million, "and ultimately deliver upside to that number."
This post has been written by Kris Graft on July 28, 2010 couresy of gamasutra.com.