Activision Blizzard (NASDAQ: ATVI) announced second-quarter earnings results in early August that modestly outpaced management’s forecast. The video game developer continues to expect robust growth in 2018, although an unusually large portion of those gains won’t come until the fiscal fourth quarter, after the release of a surge of new content.
CEO Bobby Kotick and his executive team held a conference call with Wall Street analysts following the earnings announcement to put the latest results into context and explain why Activision is confident in its long-run growth strategy.
Continue Reading Below
Here are a few highlights from that discussion.
Audience size will rebound
The active user base shrank across each of the publisher’s three core divisions, with Activision dipping to 45 million from 47 million, Blizzard falling to 37 million from 46 million, and King slipping to 270 million from 314 million a year ago.
The declines were mostly a consequence of the cadence of new content releases, and so management isn’t worried about the smaller audience. The company managed to boost sales, after all. However, the losses in the casual King gaming segment were exacerbated by technical network issues that executives say have been fixed.
Players are engaged
Advertisement
Across all of its gaming franchises, users spent about 50 minutes per day interacting with Activision’s games. Key engagement wins in the period included surging interest in the Overwatch League tournament and a 50% jump in minutes watched heading into the Call of Duty World League championships. “Our unique approach to esports,” Kotick explained, “has already started to pay off for our partners, our shareholders, and our players.”
In-game purchases drive revenue
The company generated $1 billion of in-game spending for the second straight quarter, thanks mainly to digital expansions in the Call of Duty and Destiny franchises. King’s new advertising platform, meanwhile, was profitable and grew revenue between the first and second quarters.
Expect volatility ahead
Activision’s third quarter forecast calls for sales and profits to fall when compared to last year, which management said was a consequence of big events like the launch of Destiny 2 in the year-ago quarter that won’t be repeated this time around.
However, the fiscal fourth quarter will benefit from major new releases in the World of Warcraft and Call of Duty franchises. Put it all together, and the company believes it will achieve a strong year for sales and profits, but executives cautioned that “we still have a lot of execution ahead of us in the second half” of 2018. That seasonal tilt was likely a key reason why Activision didn’t raise its full-year outlook by much even though sales are running ahead of expectations through the first six months of 2018.
10 stocks we like better than Activision BlizzardWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Activision Blizzard wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 6, 2018
Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.
