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Activision Blizzard (ATVI) Down 12.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Activision Blizzard (ATVI - Free Report) . Shares have lost about 12.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Activision Blizzard due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lower In-game Revenues, Higher Cost Hurt Activision’s Top-Line

Activision Blizzard reported first-quarter 2019 non-GAAP earnings of 78 cents per share that remained flat year over year. However, the figure surpassed the company’s guidance of 63 cents.

Net revenues on a GAAP basis declined 7.1% year over year to $1.83 billion. However, the figure outpaced the company’s guidance of $1.72 billion. This better-than-expected performance was due to strict operating discipline.

However, lower segment operating income from Activision, Blizzard and King due to decline in in-game revenues, higher costs and increase in investments hurt the top line.

The Zacks Consensus Estimate for earnings and revenues was pegged at 25 cents per share and $1.22 billion, respectively.

Quarter in Detail

Activision Blizzard’s net bookings decreased 8.7% year over year to $1.26 billion. Net bookings from digital channels were $1.07 billion, down 11.6% from the year-ago quarter.

Activision earned $800 million in in-game net bookings in the quarter.

Segment wise, product sales (35.9% of total net revenues) were $656 million, down 8.9% year over year. Subscription, licensing and other revenues (64.1%) decreased 6.1% to $1.17 billion.

The company had 345 million monthly active users (MAUs) at the quarter end, down 3.1% sequentially.

Activision Publishing’s revenues increased 1.6% year over year to $317 million due to the Call of Duty: Black Ops 4 monetization opportunities and successful launch of Sekiro: Shadows Die Twice. Activision had 41 million MAUs, down 22.6% sequentially primarily due to the omission of Destiny MAUs.

Call of Duty: Black Ops 4’s user engagement levels and total hours played in the reported quarter saw double-digit growth compared with Call of Duty: WWII, owing to the Blackout mode. Additionally, Activision stated that city-based Call of Duty league sold its first five franchise teams to the existing Overwatch League team owners in the cities of Atlanta, Dallas, New York, Paris and Toronto.

Moreover, Sekiro: Shadows Die Twice became the most viewed game on Amazon’s Twitch on the release day — Mar 22. Moreover, the game sold more than 2 million copies globally in less than 10 days of release. Further, the game achieved the “Must-Play” status on Metacritic. Notably, the game has been given the status that only 1% of the games get each year, per management.

However, overall in-game net bookings for Call of Duty were lower than the year-ago period.

Blizzard’s revenues of $344 million declined 28.3% from the year-ago quarter. Blizzard had 32 million MAUs, down 8.6% sequentially due to lack of major game releases.

However, the second season of the Overwatch League, which began in the reported quarter, witnessed higher viewership levels. Notably, to date, viewership hours for the second season are more than 30% higher compared with the first season.

King Digital’s total revenues of $529 million declined 0.9% year over year. However, King Digital reported MAUs of 272 million, up 1.5% sequentially due to increased monetization and retention with Candy Crush Friends Saga. Notably, King Digital MAUs increased sequentially for the second time in a row after the business was acquired in first-quarter 2016.

Given the strong performance of Candy Crush Friends Saga, King Digital is expected to boost its marketing initiatives in 2019. Moreover, the game continues to attract new and existing players.

Further, King had two of the top 10 highest-grossing titles on U.S. mobile app stores for 22 quarters in a row. Notably, over 0.5 billion users played Candy Crush for years since the franchise’s launch.

Daily time spent/user with Activision’s games increased year over year across Activision Publishing, Blizzard and King. Daily time spent/user across the Candy Crush franchise was 38 minutes. In total, average daily time spent/user was about 50 minutes.

On the basis of distribution channels, Activision reported retail channel sales of $313 million (down 23.5% year over year) and digital online revenues of $1.99 billion (down 4.8%). Digital revenues contributed 76% to total revenues in the quarter. However, other revenues increased 28% year over year to $119 million.

On the basis of platforms, revenues from mobile and ancillary (29% of total revenues) declined 0.2% year over year to $535 million and revenues from console (37%) decreased 17.1% year over year to $677 million. Additionally, PC (27%) declined 4.8% year over year to $494 million.

On a geographical basis, revenues from America (54% of total revenues) decreased 7.2% year over year to $988 million, and Europe, Middle East and Africa (EMEA) (34%) decreased 10.6% year over year to $614 million. However, revenues from the Asia Pacific (12%) increased 4.7% to $223 million.

Operating Details

Product development (13.6% of revenues) declined 3.9% year over year to $249 million. Also, sales and marketing (11.3%), and general and administrative (9.8%) expenses decreased 17.5% and 9.6%, respectively, year over year to $207 million and $179 million.

On a non-GAAP basis, operating income was $744 million compared with $767 million reported in the year-ago quarter. However, operating margin of 40.8% was slightly higher than 39% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2019, Activision had $4.69 billion in cash and cash equivalents compared with $4.23 billion as of Dec 31, 2018. The company exited the quarter with long-term debt of $2.67 billion, similar to the fourth-quarter 2018 figure.

Operating cash flow for the reported quarter was $450 million, down from $529 million in the year-ago period.


Second-Quarter 2019

Activision expects non-GAAP revenues of $1.32 billion and earnings of 35 cents per share.

The company will boost its content offerings in Call of Duty: Black Ops 4 to attract new users. Additionally, at the end of the quarter, Activision will launch Crash Team Racing nitro fuelled. Moreover, Blizzard will release World of Warcraft Classic and Warcraft III: Reforged.

However, the company expects expenses to increase going forward, owing to many game releases in the near term.


Activision anticipates non-GAAP revenues of $6.03 billion and earnings $1.85 per share.

The company expects to deploy more resources (about 20%) in its franchises, including Call of Duty, Overwatch, Candy, Warcraft, Diablo and Hearthstone. Although Activision continues to invest in its mobile initiatives, it doesn’t expect to benefit from those this year. Additionally, the company does not expect to recognize revenue from “Call of Duty eSports team sales” in 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -36.79% due to these changes.

VGM Scores

Currently, Activision Blizzard has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Activision Blizzard has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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