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Activision's (ATVI) Q4 Earnings Decline Y/Y on Weak Revenues

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Activision Blizzard (ATVI - Free Report) reported fourth-quarter 2019 non-GAAP earnings of 62 cents per share that declined 31.1% year over year.

Consolidated revenues declined 16.6% year over year to $1.99 billion. Adjusting for revenues from non-reportable segments, net effect from the recognition of deferred revenues and intersegment elimination segment revenues declined 4.4% to $2.52 billion.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.20 and $2.67 billion, respectively.

For the quarter ended Dec 31, 2019, overall Activision Blizzard Monthly Active Users (MAUs) were 409 million.

Top-Line Details

Segment-wise, product sales (35.2% of consolidated revenues) were $699 million, down 13.5% year over year. Subscription, licensing and other revenues (64.8% of revenues) decreased 18.2% to $1.29 billion.

Based on distribution channels, Activision Blizzard reported retail channel sales of $310 million, down 9.6% year over year. Other revenues decreased 5.2% year over year to $237 million. Moreover, digital online revenues of $1.44 billion fell 19.5% from the year-ago quarter.
 

Activision Blizzard, Inc Price, Consensus and EPS Surprise

Activision Blizzard, Inc Price, Consensus and EPS Surprise

Activision Blizzard, Inc price-consensus-eps-surprise-chart | Activision Blizzard, Inc Quote

 

Further, on the basis of platforms, revenues from mobile and ancillary (31.9% of consolidated revenues) rose 6.2% year over year to $633 million. However, revenues from console (30% of consolidated revenues) decreased 26.4% year over year to $595 million. Additionally, PC revenues (26.2% of consolidated revenues) declined 28.3% year over year to $521 million.

On a geographic basis, revenues from the Americas (47.1% of consolidated revenues) decreased 18% year over year to $935 million. Europe, the Middle East and Africa (EMEA) revenues (35.9% of consolidated revenues) declined 15.5% year over year to $713 million. Moreover, revenues from the Asia Pacific (17% of consolidated revenues) fell 14.9% to $338 million.

Activision Blizzard’s net bookings declined 4.5% year over year to $2.71 billion. Net bookings from digital channels were $1.88 billion, unchanged year over year.

Notably, in-game net bookings were $1.09 billion, down 9.9% year over year.

Segment Details

Activision (56.5% of segment revenues) revenues increased 1.1% year over year to $1.43 billion. The division had 128 million MAUs as of Dec 31, 2019.

Call of Duty Mobile installs exceeded 150 million. The game ended the fourth quarter as one of the top 15 grossing games in the U.S. app stores.

Call of Duty: Modern Warfare unit sell-through increased a double-digit percentage compared with Call of Duty: Black Ops 4, with growth across PC and console. PC sell-through on Battle.net grew 50% year over year.

Moreover, Modern Warfare saw strong growth in full-game downloads, with console digital mix at nearly 50%. In-game net bookings grew a double-digit percentage versus Black Ops 4.

Blizzard (23.6% of segment revenues) revenues of $595 million declined 13.3% from the year-ago quarter. Blizzard had 32 million MAUs as of Dec 31, 2019.

Hearthstone’s Descent of Dragons expansion pack and the new Battlegrounds game mode drove sequential growth in engagement in the reported quarter. Net bookings also grew sequentially for the franchise.

Additionally, Overwatch was launched on Nintendo’s Switch, further expanding a community that has surpassed 50 million players globally since launch.

King’s (19.9% of segment revenues) revenues of $503 million declined 7.4% year over year. MAUs were 249 million as of Dec 31, 2019.

Candy Crush Saga mobile reach grew year over year and it was the top-grossing title in the U.S. app stores. Moreover, Candy Crush was once again the top-grossing franchise in the U.S. mobile app stores in the fourth quarter and 2019.

Advertising net bookings grew more than 80% year over year in the fourth quarter and exceeded $150 million in 2019.

Operating Details

Product development expenses declined 9.6% year over year to $283 million. Also, sales & marketing and general & administrative expenses increased 6.3% and 0.6% year over year to $339 million and $176 million, respectively.

Total costs & expenses on a non-GAAP basis declined 9.6% year over year to $1.40 million in the reported quarter.

On a non-GAAP basis, operating income was $591 million, down 29.5% year over year.

Guidance

For first-quarter 2020, Activision Blizzard expects non-GAAP revenues of $1.64 billion and earnings of 66 cents per share. Net bookings are expected to be $1.28 billion.

The Zacks Consensus Estimate for revenues and earnings is pegged at $1.33 billion and 37 cents per share, respectively. Revenues and earnings are estimated to grow 5.9% and 19.4%, respectively, from the figures reported in the year-ago quarter.

For 2020, Activision Blizzard anticipates non-GAAP revenues of $6.45 billion and earnings of $2.22 per share. Net bookings are expected to be $6.73 billion.

The consensus mark for revenues and earnings is pegged at $6.88 billion and $2.53 per share, respectively. Revenues and earnings are estimated to grow 8.3% and 13.9%, respectively, year over year.

Zacks Rank & Stocks to Consider

Activision Blizzard currently carries a Zacks Rank #3 (Hold).

Casa Systems (CASA - Free Report) , ViacomCBS (VIAC - Free Report) and Cable One (CABO - Free Report) are better-ranked stocks in the broader Consumer & Discretionary sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Cable One is set to report quarterly results on Feb 27, both Casa Systems and ViacomCBS will report on Feb 20.

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