'Call of Duty on Track to Perform Over 60% Below Last Year': Ex-Activision Boss Bobby Kotick Sticks Knife in Flagging FPS Franchise

Former Activision CEO Bobby Kotick told investors in response to a lawsuit (led by investor group funded by Swedish pension AP-7) that Call of Duty: Black Ops 7 sales are down roughly 60% year-over-year, citing weak console hardware sales (US November sales at 30‑year lows) and increased competition (e.g., Battlefield) as justification for the $95/share sale of Activision to Microsoft (roughly $69 billion). The disclosure intensifies litigation and governance scrutiny of the transaction and implies material near-term revenue headwinds for Activision/Microsoft's games business heading into the holiday launch cycle against titles like GTA 6, posing downside risk to Microsoft’s upcoming results.

Analysis

Market structure: A 60% YoY decline in a marquee franchise materially reduces Microsoft’s optionality in console/publisher economics and rebalances market share toward rival publishers (EA - EA, Take-Two - TTWO) that own competing AAA releases. Expect short-term pricing power erosion in Xbox content bundles and weaker Xbox hardware attachment rates; if COD engagement falls >40% into FY+1, console software revenue contribution could slip by mid-single-digit percentage points of MSFT gaming revenue within 4–12 months.

Risk assessment: Tail risks include renewed litigation/earnings restatements or a sharp downgrade at the next MSFT call that forces multiple compression (10–20% downside scenario), and GTA6 stealing seasonal spend (near-term sales spike December). Hidden dependencies: COD drives in‑game monetization, Game Pass uptake, and cross-sell to PC cloud gaming — losses here amplify FY+2 revenue erosion. Key catalysts: MSFT quarterly results (next 30–90 days), GTA6 release window, and investor‑led lawsuit milestones.

Trade implications: Tactical short exposure to MSFT via low-cost defined-risk options is favored over outright equity short given balance-sheet strength; overweight EA/TTWO for share gains into Christmas and sell-side repricing. Rotate modestly out of console hardware names (Sony SNE, Nintendo NTDOY) and into software/Service names with live-ops resilience; expect options IV on MSFT to rise 20–40% around earnings.

Contrarian angles: The market may over-penalize MSFT because gaming is ~a mid-single-digit percent of consolidated revenue; downside beyond 10–15% in MSFT implies broader sentiment shock, not just gaming fundamentals. If MSFT levers AI-driven monetization or re-allocates marketing (next 2–4 quarters), EPS hit can be recouped — opportunity to buy weakness post-clampdown if MSFT’s Free Cash Flow yields re-rate back above 2.5%.

Key Decisions for Investors

• Establish a 1–2% portfolio-sized directional hedge by buying a 6-month MSFT 10% OTM put spread (buy 1 put 10% below spot, sell 1 put 20% below spot) to cap cost while protecting against a 10–20% drawdown into the next two earnings reports.
• Enter a 3–5% pair trade: long TTWO (or EA) vs short MSFT equal notional for 3–6 months to capture relative upside from GTA6/Battlefield tailwinds; size to target a 2–4% portfolio return if relative outperformance is 10–15%.
• Trim 1–3% absolute exposure to console hardware equities (SNE, NTDOY) and redeploy into recurring-revenue software names with live-ops (EA, TTWO) for 6–12 months, given weak US console sales and franchise fatigue risk.
• If MSFT reports an incremental gaming revenue miss >$500–750m or issues guidance down >3% at next earnings, add a tactical 1% long in MSFT 12–18 month LEAP puts for tail protection or convert to a covered-call buy of shares at a 10–15% lower target on signs of stabilization.
• Monitor weekly: COD monthly active users, Xbox hardware sell-through, MSFT gaming revenue by segment, and legal filing dates; if COD MAU decline slows to <20% YoY within 90 days, neutralize short/hedge exposure and consider opportunistic long accumulation.