Video game giant Activision Blizzard, Inc. (ATVI) reported fourth-quarter and 2015 full year earnings on Thursday afternoon. ATVI missed on analyst expectations and reaction was swift, with Activision stock dropping near 16% in after-hours trading. As of this writing, Activision stock recovered somewhat, but is still down around 10%.
While the market expected ATVI to post fourth-quarter revenue of $2.2 billion and earnings of 86 cents per share, Activision Blizzard reported revenues of $2.12 billion and per-share earnings of 83 cents, down 4% compared to the previous year.
Making the situation worse for Activision’s stock, the company issued first-quarter guidance for earnings of 11 cents a share on $800 million in revenue, while analysts had been expecting earnings more in the range of 19 cents.
Full year revenue was also down, with non-GAAP net revenue of $4.62 billion compared to $4.81 billion in 2014.
In its press release, ATVI blamed several factors blamed for the revenue misses, including a weaker-than-expected performance of casual game titles like “Guitar Hero” and “Skylanders SuperChargers.”
In particular, unfavorable foreign currency exchange rates were singled out as being a significant issue. The company points out that had exchange rates remained constant, 2015 non-GAAP net revenue and EPS would have been up by 4% and 13%, respectively, while fourth-quarter numbers would have been “roughly flat” rather than being down.
The Good News for ATVI
ATVI reported a number of highlights for the year: Digital revenue –an increasingly important source of income as gamers pay extra for downloadable content and online purchases– was up 65% on the year.
Four of the top 10 titles on the latest video game consoles are published by Activision Blizzard, including the number one game, “Call of Duty: Black Ops III”. Monthly active users for Activision games grew by 25% on the year, a number that’s important when it comes to ongoing digital revenue (engaged players buy more downloadable content), sales of current game titles (active games attract more new players) and upcoming sequel releases like the 2017 “Destiny” follow-up.
Activision Stock: What’s in Store for 2016
Activision is expecting to close its $5.9 billion deal to purchase mobile game publisher King Digital (KING) — the company behind the wildly popular casual game “Candy Crush”– raising its total number of monthly active users to more than half a billion.
High-profile game releases for the year include “Legion,” an expansion for “World of Warcraft” (the world’s number one subscription-based MMORPG) which will be launched after June’s Warcraft movie, new “Call of Duty: Black Ops III” expansions along with a Call of Duty Championship played by professional gamers, a new “Call of Duty” title just in time for the holiday season in Q4, a new Skylanders game with an accompanying Skylanders children’s TV series and a new team-based shooter called “Overwatch”.
Despite the drubbing ATVI is taking Friday, Activision stock is still up near 19% over the past year. The company has a solid roster of games set to launch in 2016, along with high profile entertainment events — that Warcraft movie and the Skylanders TV show — that are likely to have a halo effect in helping to drive game sales for those franchises.
In addition, the acquisition of King Digital will give Activision “the largest game network in the world” with over 500 million monthly active users. With the company’s digital revenue trending up (even the relatively soft Q4 saw an increase of 34% year-over-year) that MUA number becomes even more significant.
What’s more, Activision Blizzard is increasing its 2016 cash dividend by 13% (to 26 cents per share), and while its first-quarter forecast is below expectations — contributing to the ATVI stock — Activision is forecasting it will beat full-year expectations with EPS of $1.75 on non-GAAP revenue of $6.25 billion.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
