Calling a spade a spade, Activision Blizzard (NASDAQ:ATVI) was late to a couple of key parties. Namely, it missed the advent of eSports, forgoing an opportunity to control its own destiny on that front. And the stunning success of a rival game maker’s free-for-all/battle-royale hit Fortnite is something Activision stock owners would have expected the company to foresee, and thwart, before it ever became a threat.
After Thursday’s closing bell rang, however — in response to its second quarter report — investors mostly decided the company was adequately addressing those headwinds. While sales and profits fell year over year, both were better than expected. The post-close setback only unwound the gain achieved during regular-hours trading action, suggesting the market is looking for reasons to continue liking this industry-leading name.
Activision Earnings Recap
For the quarter ending in June, video game giant Activision Blizzard turned $1.39 billion in revenue into earnings of 41 cents per share versus year-ago comparisons, respectively, of $1.42 billion and 43 cents. Analysts were modeling a profit of 35 cents per share of Activision stock and sales of $1.38 billion.
CEO Bobby Kotick commented on the second quarter numbers: “This was another strong quarter for Activision Blizzard. Our portfolio of global franchises enabled us to deliver record first-half revenues and earnings per share.
“This past weekend we held the Overwatch League (TM) Grand Finals,” he added, underscoring the company’s new proactive interest in eSports. “We had a very successful first season, as we enhanced our leadership position in esports. And, today we announced two additional Overwatch League franchise sales at record prices, adding Atlanta, Georgia and Guangzhou, China to our league.”
Its Call of Duty franchise and World of Warcraft platform continue to lead the charge.
Activision Blizzard also helped itself during the quarter by tamping down some costs. Software royalty spending on products fell from $75 million to $49 million, while royalties spent on subscriptions and licensing shrank from $120 million to $85 million. Total costs and expenses edged from $1.29 billion a year earlier to only $1.2 billion last quarter,
Rival game publisher Electronic Arts (NASDAQ:EA) also reported quarterly results that were better than expected last week, but simultaneously presented an outlook that was worse than hoped. EA shares fell on concerns about the foreseeable future, dragging Activision stock lower with them leading into Activision’s second-quarter numbers. And, Activision Blizzard offered little within its second quarter announcement on Thursday to suggest Electronic Arts was thinking too pessimistically.
Still, traders are broadly supportive of the direction Activision is headed.
Looking Ahead for Activision Stock
In the grand scheme of things, last quarter’s so-so results mean very little, as Activision Blizzard is in the midst of a transition and an evolution. The long-term destination still looks encouraging either way — encouraging enough to keep the bullish pressure applied on an admittedly overvalued and overextended (in general, even if not recently) Activision stock, despite the slight pullback in after-hours trading.
Rationale? It’s still the early innings of the company’s deliberate foray into the eSports arena, and it appears to have an answer for the fevered advent of melee games in future iterations of its Call of Duty franchise. Meanwhile, the slow migration toward digital downloads rather than sales of physical game disks sets the stage for wider margins. It’s all good stuff.
It’s also stuff that sets the stage for future and revenue earnings beats, as the company has handily done in each of the past ten quarters.
The bar is certainly set low enough… now.
For the quarter underway, the pros believe sales are going to fall about 2% YoY to $1.87 billion, though they still expect earnings to improve from 60 cents to 66 cents per share of Activision stock. For the full year, analysts believe 5% revenue growth, to $7.52 billion, will push the bottom line up from last year’s $2.28 per share to $2.60 per share of ATVI.
Activision dished out its own, lower guidance though, saying it was looking for earnings of $2.58 per share of ATVI and sales of $7.48 billion for the current fiscal year. For Q3, the company has modeled a top line of only $1.62 billion and earnings of only 47 cents per share of Activision stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
