Activision Blizzard‘s (NASDAQ: ATVI) stock has had a bad month since the company reported earnings in November. Soft earnings guidance and reports of lower sales for one of Activision’s biggest gaming brands doesn’t seem to be helping the stock’s performance lately, as shares have declined more than 15% in November. Overall, the video game publisher turned in another strong earnings report. The company raised full-year guidance for revenues, but earnings guidance was lower than analysts expected.

A recent report from market research company NPD may shed some light on Activision’s soft earnings guidance. The report suggests that sales for Activision’s new Call of Duty game, Infinite Warfare, are down nearly 50% from last year’s Call of Duty Black Ops III.

Image source:  Flickr user BagoGames.

One problem with NPD’s data is that it is not known to what extent it tracks games purchased and downloaded directly through game consoles — which is becoming a more mainstream way to purchase games. The NPD report included only physical game sales purchased through retailers. However, the report dovetails with GameStop‘s (NYSE: GME) recent conference call where the game retailer hinted that Call of Duty Infinite Warfare’s total sales were underperforming their expectations.

It’s not surprising that Infinite Warfare may be underperforming last year’s version. Activision is selling into a smaller installed base — the total number of game consoles in use.  Call of Duty Infinite Warfare was published for only PC, Xbox One, and Playstation 4. Activision dropped development of the game for the previous-generation consoles, the PS3 and Xbox 360. According to VGChartz, the installed base of PS3 and Xbox 360 consoles totaled 172 million. So far in this cycle the combined sales of PS4s and XOnes is only a little over 70 million.

Also, this isn’t the first time a Call of Duty game has declined in sales from the previous year’s version. According to data from Statista, Call of Duty games have failed four times to surpass the previous year’s title in unit sales since the first Call of Duty game was released in 2003. If Infinite Warfare sells less units than Black Ops III, it will mark the fifth time in the franchise’s history.

A year-round business model

Despite the disappointing news surrounding Call of Duty Infinite Warfare, that franchise represents only one component of Activision’s growth strategy. CEO Bobby Kotick has built Activision Blizzard into a year-round business using a strong lineup of games, such as Skylanders, Diablo III, World of Warcraft, and Destiny, in addition to downloadable content (DLC).

DLC is extra content, like new outfits and weapons for a character, or new quests and storylines, that can be purchased within a game. DLC is very valuable to both the player and Activision. It can extend the hours of gameplay for the player, and it adds high-margin revenue on top of the original sale price of the game.

Digital revenue, which includes DLC and subscription revenue, year to date represents about 75% of total revenue. DLC, alone, was more than $1 billion, or about two-thirds of total revenue in the third quarter, and $2.8 billion year to date, while total revenue year to date is $4.5 billion and is expected to be more than $6 billion for the full year.

Activision attributes this strength in digital revenue to strength across all franchises, which includes World of Warcraft, Destiny, and Call of Duty, among others. DLC for Call of Duty increased more than 100% year to date, reflecting the deep engagement that players still have with previous versions of the game.

Reasons for investor optimism

In addition to an existing lineup of solid games that generate year-round revenue, Activision continues to develop new business opportunities for long term growth.

New intellectual property development: Activision doesn’t rest on its past successes. Earlier this year, Overwatch, a team-based multiplayer first-person shooter, was released. It exceeded 20-million players in the first four months, making it Activision Blizzard’s fastest-growing new intellectual property.

Image source:  Activision Blizzard.

New business models: Two other drivers of future growth to keep an eye on are e-sports and in-game advertising. Activision is in the early stages of developing these new channels for long-term growth. Both e-sports and in-game advertising should further develop Activision into a year-round, recurring-revenue business model, much like the subscription-based model of Blizzard’s World of Warcraft.

Transformative acquisitions: There’s also the potential of another major acquisition down the road. The merger with Blizzard in 2007 brought a lucrative subscription-based business model to Activision’s lumpy, seasonal performance. The recent King acquisition dramatically expanded Activision’s audience to around 500-million mobile players. These deals reveal CEO Bobby Kotick to be a very savvy steward of shareholders’ investments. An example being his 600-million share buyback in 2013 that served as a major catalyst to move the stock higher after three years of stagnant stock performance.

Investors shouldn’t be concerned by reports of soft Call of Duty sales. Call of Duty is one of the most popular games in the industry, yet it’s only one of several drivers of growth for Activision going forward.

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