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Video game publisher Activision Blizzard  reported worser than expected third quarter earnings and guided lower for next quarter confirming concerns about holiday sales. The report followed a not so well received Diablo Immortal at BlizzCon 2018.


Activision Blizzard NASDAQ: ATVI · Reported Earnings After Close Thursday

$0.52 Beat $0.50 EPS and $1.66 Billion Matched forecast in revenue 

Earnings Preview

Activision Blizzard (ATVI) reported third quarter earnings with net income up 38.2% to $260 million and a gain of 36% to $0.34 per share. Non-GAAP earnings decreased 10.6% to $0.42 per share. Adjusted 52 cents a share was ahead of the expected 52 cents per share. Net revenue fell 6.6% to $1.51 billion. Revenue was $1.66 billion for the quarter, lower by 12.6% compared to last year but was expected at $1.66 billion, consensus analyst estimated. In Q2 2017, adjusted EPS came in at $0.60 on revenue of $1.9 billion. ATVI, Q3 guidance  was for an adjusted EPS of $0.37 on revenue of $1.49 billion. 

Activision Blizzard, Inc. NASDAQ: ATVI·

Market Reaction After Hours $53.94 USD −8.85 (-14.09%)

Highlights

Over the last three months, Activision launched Call of Duty: Black Ops 4, Blizzard released World of Warcraft: Battle for Azeroth and King launched Candy Crush Friends Saga for its global franchises.

  • Activision Blizzard had 345 million monthly active users (MAU) in the quarter.
  • King had 262 million MAU in the quarter
  • Candy Crush Saga MAU grew year-over-year.
  • Blizzard had 37 million MAU in the quarter.
  • World of Warcraft: Battle for Azeroth set a new day-one franchise record with more than 3.4 million units sold-through.
  • Activision had 46 million MAU in the quarter.
  • Destiny MAU grew year-over-year, driven by the launch of Forsaken and reach initiatives for the base game.
  • Activision MAU increased significantly in October following the launch of Call of Duty: Black Ops 4.

Outlook

  • Looking ahead into the fourth quarter, ATVI  expects adjusted earnings of $0.64 per share and revenues of $2.236 billion.
  • For the full year 2018, the adjusted earnings and revenue forecast is maintained at $2.46 per share and $7.355 billion, respectively.
  • Net bookings are expected to be $7.48 billion for 2018 and $3.05 billion for the fourth quarter.

ATVI Earnings Q3 18

Gaming has many components, investors and gamemakers alike realize its games aren't always winning this battle, hence the stock price volatity in this sector. The earnings call will focus on the launch and plans of Call of Duty: Black Ops 4 and an update on the health of the gaming industry. Fortnite has shaken the whole industry up with it's off the charts success. Given you an only play so many games the sucking up of gaming hours by Fortnite has affected all the competing gaming companies. When you are palyimg Fortnite you are not playing Activision Blizzard titles like Call of Duty and World of Warcraft or mobile games from King. The question is how much, and for how long? 

Activision Blizzard launched a new mobile game, Diablo Immortal at BlizzCon 2018 that was not popular with gaming fans. Diablo Immortal is a brand new Diablo title, a franchise traditionally beloved by diehard PC gamers. The new title is an online mobile game that attempts to bring the Diablo universe onto your smartphone. Mobile games are the most profitable segments for ATVI, so the move is rational but not one that resonates well with the hard car gamers.

Activision Diablo Immortal

Bobby Kotick the CEO of Activision recently said, “We believe we’re seeing some impact across certain franchises, primarily on engagement, including players that seem to be splitting some of their time between our games and trying something new.”

NPD Group reported a similar trend saying, “the concentration of retail revenues among key tittles has continued as a trend in the overall interactive entertainment industry.”  This is a very trend driven space NPD said that the top 10 titles account for 36% of retail sales in the U.S. in 2017. There will be a percentage of new gamers because of Fortnite but how many existing gamers from that top 10 went to Fortnite?

Activision Blizzard Q2 Earnings Recap

Video game publisher Activision Blizzard $ATVI was downgraded along with Electronic Arts $EA by Bank of America Merril Lynch with concerns about holiday sales. Despite expected strong sales of  Call of Duty WWII the success of Fortnite concerns analysts.

After Electronic Arts lowered guidance with the delay of it's flagship franchise Battleship V last week Bank of America Merrill Lynch responded the next day by downgrading $EA and Activision Blizzard as it gets the jitters over the video gaming industry's holiday selling season.

Both stocks were lowered to neutral from buy, citing the crowded holiday slate and competition from "Fortnite."

EA shares fell nearly 10 percent on Thursday after the company delayed its key "Battlefield V" game and lowered financial guidance for the year.

Bank of America analyst Justin Post note to clients Friday

- "More cautious as some key franchises continue to slump" -

Activision Blizzard shares fell 2.7% Friday, while EA shares fell 2.18% . The analyst lowered his price target for Activision Blizzard to $77 from $84. Post cited how "Fortnite" continues expand its user base on a monthly basis, which may negatively affect the large publishers' game sales later this year. Increased competition in the first-person shooter game market, as shown by the "Battlefield V" issues, will likely pressure publishers' high valuation multiples, he said.

Earnings of Activision Blizzard $ATVI increased sharply in the second quarter beating analysts’ expectations with record mobile revenues and net bookings. However the company issued below-consensus guidance for the third quarter and were down 3% after the release. At the same time the parent of studios with games such as Max Payne, Grand Theft Auto and NBA 2K18, rival Take-Two Interactive $TTWO shares lept over 7% aftermarket on upbeat earnings and bookings for Q1 2019. Post did not downgrade Take Two in his note.

ATVI Earnings Q2 18

Activision Blizzard shares are up 14.3 percent this year through Friday, while EA's stock is up 8.2 percent. In the same time period, the S&P 500 is up 8.5 percent. Post is concerned a crowded fourth quarter "may lead to spillover challenges in early 2019 as publishers vie for gamer engagement to drive live service initiatives," he said. 

Source: ATVI, TradersCommunity,alphastreet

From The TradersCommunity Research Desk

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