Activision Blizzard stock down due to weak outlook despite Q2 earnings beat

Activision Blizzard (NASDAQ: ATVI) stock dwindled 1% after the bell as the  outlook failed to impress the street. However, q2 results topped analyst consensus. The gaming giant’s shares have recovered 20% after it touched a new 52-week low of $39 mark in February.

Disappointing Outlook

The company’s outlook for the third quarter and full-year failed to meet analyst estimates. Activision is expecting Q3 revenues to come in at $1.1 billion and adjusted EPS of 20 cents. On the flip side, analysts are estimating top line of $1.36 billion and non-GAAP earnings of 40 cents per share.

For the fiscal 2019 period, the company is anticipating sales of $6.19 billion and adjusted earnings of $2.02 per share. From the street perspective, revenue is projected at $6.38 billion and non-GAAP earnings of $2.15 per share.

Q2 Performance

Revenue plunged 15% to $1.39 billion over last year and adjusted EPS was down 15% to 53 cents. The second quarter results came in ahead of the prior outlook provided by the firm and also eclipsed consensus.

Last quarter, Activision guided a top line of $1.3 billion and adjusted earnings of 35 cents per share. Analysts were expecting revenue of $1.19 billion and adjusted EPS of 26 cents.

Bookings, one of the key metrics tracked by the street, contracted 12% to $1.21 billion with digital channel bringing in 84% of sales. However, it surpassed $1.15 billion provided by the company last quarter.

Key Engagement Metrics

Monthly Active Users (MAU) continued the declining trend from the first quarter, which is a concern for investors. With the absence of new gaming releases, the company is struggling to keep the engagement intact in the existing games. MAUs plunged 7% to 327 million over last year and was down 5% sequentially.

In-game sales and esports are emerging as tailwinds for the gaming industry. Out of the total bookings of $1.21 billion, 66% came from in-game sales, which is expected to increase in the near future. Last quarter, in-game sales brought in 64% to the net bookings.

Activision’s Overwatch League and Major League Gaming which is reported under “Other” segment grew 13% over prior year. Last year, this segment where esports revenues are reported brought in $607 million, an increase of 20% over the fiscal 2017 period.

Gaming research firm Newzoo expects esports industry to grow 27% in 2019 hitting $1.1 billion, with sponsorships contributing about 42%. The firm also added that the industry would generate $1.8 billion of revenues by 2022.

Peer Performance

Last month, Electronic Arts (EA) first quarter results came ahead of estimates. It also benefitted from an one-time tax benefit of $1.7 billion for the fiscal year. Live services and subscriptions saw good growth, which is expected to be a tailwind for the gaming industry.

Earlier this week, Take-Two Interactive Software (TTWO) reported better-than-expected first quarter results. Revenue rose 39% to $540.5 million while bookings went up 46% to $422.2 million. On an adjusted basis, EPS was 27 cents, compared to 2 cents estimated by the street.

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