There Is More to Activision Blizzard's King Acquisition Than Meets the Eye

By John Ballard Markets Fool.com

A recent job listing on King's website revealed plans to develop a new Call of Duty mobile game.The ramifications of this effort could be very beneficial forActivision Blizzard's (NASDAQ: ATVI)shareholders in the future.

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King contributed 23%, or about $500 million, to Activision's operating income in 2016, but that may be just scratching the surface of King's long-term value to the combined company.

Mobile gaming represents a big growth opportunity for Activision Blizzard. IMAGE SOURCE: ACTIVISION BLIZZARD INC.

King is starting an ambitious project

At the time the King acquisition was completed, Activision Blizzard CEO Bobby Kotick said, "We see great opportunities to create new ways for audiences to experience their favorite franchises, from Candy Crush to World of Warcraft to Call of Duty and more, across mobile devices, consoles and personal computers."

Activision Blizzard is now taking that first step toward utilizing King's expertise in mobile game development. King is currently in the process of filling key positions to work on a new Call of Duty mobile game that "will strive to transform the best console experience fans know and love, while also breaking new ground for mobile and redefining the genre."

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King's approach on Call of Duty will be "fresh," "to think outside the box," and "to stretch their expertise in ways to create surprising results."

We don't have any more information than what King writes on its jobs website, but it definitely points to a new gaming experience much more ambitious than anything King has done before.

Here are two things this new project highlights about King's value to Activision Blizzard.

1. King's talented mobile game developers

With King, Activision Blizzard gained much more than access to lucrative mobile games like Candy Crush. Kotick hinted in his statement that there was long-term value in utilizing King's mobile expertise to maximize the potential of Activision Blizzard's classic franchises on mobile devices.

Activision has published mobile versions of Call of Duty before. However, in past efforts, Activision didn't have a studio with the talent on the level of the creative minds at King.

The decision to let the Bubble Witch maker develop a mobile version of one of the best-selling franchises in video game history reveals how highly Activision executives regard King's talent.

2. King's ability to develop addictive games that generate big profits

By tapping into King's development talent, Activision will maximize the long-term value of games like Call of Duty and World of Warcraft on mobile gaming platforms. A few more big hits to go along with Candy Crush and Bubble Witch would significantly increase the value of the combined companies' mobile properties, making the $5.9 billion purchase for King look like a bargain.

The King developers want to create a Call of Duty game that fans of the franchise "will want to play for years." Investors should read that phrase and see dollar signs floating all over the place.

Here's why.

As with King's other games, it's likely the new Call of Duty game will be free to download with additional in-app purchases made available over time (also known as the free-to-play model). Given the ambitions noted in King's description of the new project, this game will deliver a very fun, engaging experience for Call of Duty fans, which will generate plenty of demand for additional content through in-app purchases over many years.

The bottom line

King's past success demonstrates that it has mastered the free-to-play business model. There is tremendous potential over time for Activision Blizzard to build one of the most profitable mobile game empires in the industry as it hands over the reigns of its biggest franchises to the mobile experts at King.

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John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.