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Video game publisher Activision Blizzard  reported better than expected third quarter earnings and guided higher. $ATVI saw growth from its World of Warcraft Classic launch. Core games include Overwatch, Call of Duty, and Candy Crush mobile games.


Activision Blizzard NASDAQ: ATVI · Reported Earnings After Close Thursday

$0.38 Beat $0.23 EPS and $1.282 Billion Beat $1.16 Billion forecast in revenue 

Earnings

Activision Blizzard for the quarter ended September 30, 2019, on a non-GAAP basis, Activision Blizzard’s earnings per diluted share were 38 cents, compared to 42 cents for the third quarter of 2018. Analysts had expected 23 cents a share. ATVI said its revenues were $1.282 billion, as compared with $1.105 billion for the third quarter of 2018.

Last Friday at BlizzCon, the company’s annual gaming convention, ActivisionBlizzard announced the upcoming launch of Diablo 4, as well as Overwatch 2 and a World of Warcraft expansion which are all key franchises. This follows the October 25 launch of “Call of duty: Modern Warfare” which was positively received, grossing more than $600 million worldwide in its first weekend.

Estimates compiled by FactSet show that analysts are looking for 23 cents in earnings and $1.16 billion in revenue.

Stifel was expecting the company to report declining revenue, but the firm has a buy rating on the stock because it believes there are positive catalysts on the horizon. “Our positive stance on the shares of Activision Blizzard is based on expectations for improving fundamentals beginning in ’20 and continuing forward, which we believe the shares will discount in advance,”

Stifel analyst Drew Crum wrote in an October 23 note to clients he is expecting the company to report EPS of 31 cents on $1.91 billion in revenue.

The video game maker has been caught in political crossfire recently. There were calls to boycott BlizzCon after the company took action against a player who showed support for the Hong Kong protesters. Activision Blizzard and competitor Electronic Arts have both gained 21% this year.

Activision Blizzard, Inc. NASDAQ: ATVI

Market Reaction After Hours $53.33 −1.22 (-2.24%)

Highlights

Activision said earlier that Call of Duty: Modern Warfare generated $600 million in its first three days of sales, more than WWII and Black Ops 4, which both made more than $500 million in their opening weekends. And today, the company said that Modern Warfare is outselling last year’s Black Ops 4 by a percentage margin in the “teens.”

This year’s game launched after the third quarter, on October 25, and it is edgy with ultraviolent scenes in the single-player campaign that include torture, child combat, and shooting unarmed women. Fans have reacted positively to the realism of both the content and the graphics, as it brings the game closer to being more like a documentary of modern warfare.

  • In the third quarter, Activision had 36 million monthly active users, Blizzard had 33 million, and King had 247 million.
  • The Candy Crush mobile franchise grew over the past year, the company said, driven by last year’s launch of Candy Crush Friends Saga.
  • Advertising bookings almost doubled from a year ago.
  • The company laid off about 800 employees in February. This followed financial results for the fiscal year 2018 that were the company’s best-ever but fell short of expectations.

“Our third quarter results exceeded our prior outlook for both revenue and earnings per share,” said CEO Bobby Kotick in a statement. “Recent launches have enabled significant growth in the size of our audiences for our Call of Duty and World of Warcraft franchises. As we introduce mobile and free-to-play games based on our franchises we believe we can increase audience size, engagement and monetization across our wholly owned franchises. With a strong content pipeline and momentum in mobile, esports and advertising, we are confident we will remain a leader in connecting and engaging the world through epic entertainment.”

Outlook

For the fourth quarter, the company said it expects revenues of $1.812 billion and earnings per share of 43 cents on a non-GAAP basis. That’s only slightly up from the third quarter, and less than some of the most optimistic forecasts. (Overall, analysts expected $2.20 a share for Q4).

Chief operating officer Coddy Johnson said in a call that Activision Blizzard will be able to spend a lot of money marketing Call of Duty Mobile, and this will affect profitability in Q4.

While the company faced some protesters related to its banning of a Hearthstone player who advocated liberating Hong Kong, the games were pretty much well received. Kotick said in an analyst call that he expects Blizzard to deliver consistent results thanks to strong franchises like Overwatch, Hearthstone, and World of Warcraft. World of Warcraft Classic drove the biggest quarterly increase to subscription plans in franchise history, in both the West and East, the company said. World of Warcraft’s next expansion, Shadowlands, will launch in 2020.

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 focusrf 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 playing 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 said last year, “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.”

Last year 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?

Source: ATVI, TradersCommunity,alphastreet

From The TradersCommunity Research Desk

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