Earnings Preview: Activision Blizzard to report muted Q1 results as it tries to retain its mojo

Activision Blizzard (ATVI) plans to release its first-quarter results tomorrow after markets close followed by an earnings conference call at 4:30 pm ET. The gaming giant’s stock price plunged more than 30% in the last six months as the company faces intense competition from Fortnite, lack of major gaming releases and muted 2019 guidance.

Last quarter, Activision top line grew 16.5% and swung back to profit over last year aided by cost-cutting measures resulting in lower expenses and tax outflows. However, the fourth quarter results failed to beat estimates.

Muted Outlook

For the first quarter, the company expects revenue of $1.71 billion and non-GAAP earnings of $0.63 per share. Last year, revenue came in at $1.97 billion and adjusted EPS was $0.78. Activision is bracing itself for a muted Q1 2019 results due to multiple headwinds facing the firm.

Looking ahead for the full-year results, the gaming giant’s non-GAAP earnings is projected at $1.85 per share on revenue of $6 billion. Bookings are expected to be lower at $6.30 billion compared to $7.26 billion recorded in 2018.

Changing Gaming Landscape

The gaming industry has been witnessing a change in trends due to changing consumer behavior and mobile becoming the largest gaming platform recording strong revenue growth. Battle royale games have become an instant hit amongst gamers globally which has resulted in the rise of Epic Games’ Fortnite. Fortnite follows a free-to-play model where users need to pay money for accessing premium features.

The changing trend had put pressure on players like Activision and its peers like Electronic Arts (EA) and Take-Two Interactive (TTWO). All the three players shares plunged double-digits post their recent earnings result due to increased competition from the likes of Fortnite denting their profits. Activision plans to embrace the growing trend by providing battle royale mode and offering support across all form factors.

The company has been investing in esports category. Investors will be expecting more updates from the management regarding the performance of Overwatch League and how one can expect the category to contribute to the top line.

Mobile is emerging as the largest platform for gamers and it’s the fastest-growing among available gaming platforms. Activision plans to tap the potential and has announced its intention to bring all the existing games to mobile which would augur well for the firm in the near future.

The next big franchise

Last year, the top 3 franchises Call of Duty, Candy Crush, and World of Warcraft brought in 58% of revenues. In 2017, 66% of revenues came from four franchises Call of Duty, Candy Crush, World of Warcraft, and Overwatch. The gaming giant needs to reduce the dependency on the old franchises and needs to find the next big gaming title which would fuel the next wave of growth for the company.

Activision’s peer Electronic Arts is slated to report it earnings on May 7 while Take-Two is reporting on May 13.

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