(Reuters) - Activision Blizzard Inc ATVI.O topped Wall Street estimates for quarterly profit on Thursday, driven by sales of its blockbuster videogame, "Call of Duty", but forecast current-quarter and full-year revenue below expectations. FILE PHOTO: A crowd waits for a video presentation at the Activision booth during the 2014 Electronic Entertainment Expo, known as E3, in Los Angeles, California June 11, 2014. REUTERS/Jonathan Alcorn/File Photo The company is slated to release “Call of Duty: Black Ops 4” as well as “World of Warcraft: Battle for Azeroth” and “Destiny 2: Forsaken” in the second half of the year. “Pre-orders are strong,” Activision President Collister Johnson said on a post-earnings call. The company forecast 2018 adjusted profit of $2.58 per share and revenue of $7.48 billion, while the Street was expecting a profit of $2.60 per share and revenue of $7.52 billion. Rivals Electronic Arts EA.O and Take Two Interactive Software TTWO.O have also lined up a clutch of games such as "FIFA 19", "NBA 2K 19", "Red Dead Redemption 2" and "Battlefield V" to be released in the second half of 2018. The results from videogamers come in the backdrop of the massive success of games from the “battle royale” genre such as “Fortnite” and “PlayerUnknown’s Battlegrounds”. Activision is also tapping into the rising popularity of e-sports through its Overwatch league and recently signed a multi-year agreement with ESPN and Disney XD for live coverage of the league. “As the mainstream popularity of e-sports continues to grow, we’re well positioned to leverage the success of our Overwatch League model to develop new eSports opportunities in the future,” Chief Executive Robert Kotick said on the call. Activision said it expected third-quarter adjusted revenue of $1.62 billion and profit of 47 cents per share, below analysts’ average estimate of $1.87 billion and 66 cents per share. Wedbush Securities analyst Michael Pachter said the lower current-quarter forecast was primarily because the year-ago period was boosted by the success of “Destiny 2”. The game brought in around $450 million a year ago, he said. The videogame publisher’s net income jumped to $402 million, or 52 cents per share, in the second quarter, from $243 million or 32 cents per share, a year earlier. Excluding items, the company earned 41 cents per share, beating the average analyst estimate of 35 cents. The company, which is behind popular franchises such as “Skylanders”, said total adjusted revenue fell 2.3 percent to $1.39 billion in the quarter. Analysts on average had expected $1.38 billion, according to Thomson Reuters I/B/E/S. Shares of the company seesawed in after-market trading, to be down marginally at $73.40.<doc-sep>There was a lot of uncertainty going into Activision Blizzard's (NASDAQ:ATVI) second-quarter financial report. Although the company delivered a record quarter three months ago, Activision's conservative guidance and the uncertainty resulting from the growing popularity of the battle royale genre -- led by Epic Games' Fortnite -- had investors leaving the game. It turns out that those fears were unfounded, as the company delivered another quarter that topped expectations. For the just completed second quarter, Activision reported net revenue of $1.64 billion, an increase of 1% year over year and beating the company's forecast of $1.35 billion. It also easily exceeded analysts' consensus estimates of $1.4 billion. The company's profitability was even better, with adjusted earnings per share of $0.62, soaring past analysts' expectations for $0.36. The raw numbers Metric Q2 2018 Q2 2017 Year-Over-Year Change Net revenue $1.641 billion $1.631 billion 1% Net bookings $1.38 billion $1.42 billion (2.8%) Operating income $434 million $339 million 28% Earnings per share $0.52 $0.32 62% In the first half, Activision produced record revenue, net bookings (which is net revenue less deferrals), and earnings per share. The company said it also generated record mobile revenue and mobile net bookings during the second quarter. One of the most impressive aspects of the results was the spending discipline that resulted in lower costs, both on an absolute basis, and as a percentage of revenue. Expenses declined by 6.6% year over year, providing a considerable boost to profitability. The company did report some minor impact to player engagement from the growing popularity of the battle royale genre, but didn't see any significant financial impact thus far. Players gonna play Players continue to spend, as Activision Blizzard delivered $1 billion in in-game net bookings during the quarter and produced a record $2 billion so far this year. Each operating segment contributed to these milestones. King boasted two of the top 10 highest-grossing titles in the U.S. from mobile app stores for the 19th consecutive quarter, as Candy Crush regained the top spot. The Activision unit also had record second-quarter in-game net bookings, with contributions from Call of Duty: WWII, Call of Duty: Black Ops 3, and Destiny 2. Activision continue to report impressive audience reach across its portfolio of games during the quarter, with 352 million monthly active users (MAUs). The King division boasted 270 million MAUs, with players of the Candy Crush Saga up year over year, and daily time spend coming in at 36 minutes. The Blizzard unit reported 37 million MAUs, with its flagship World of Warcraft due for an upcoming expansion -- Battle for Azeroth -- which the company said is seeing strong pre-orders. The company is also planning additional esports events around Overwatch, as well as a continuous stream of content in the back half of the year. Finally, the Activision segment had 45 million MAUs. Call of Duty: World War II also impressed, having more MAUs than its predecessor. Early success in esports The Overwatch League, the company's entry into the esports arena, recently completed its inaugural season, and Activision penned an exclusive multi-year deal with Disney and ESPN to televise both the Overwatch League playoffs and Grand Finals on a variety of the company's television and cable networks. The Grand Finals played to a sellout crowd, with millions of global viewers joining in via television networks and streaming platforms. The company also revealed the addition of two new Overwatch franchises "at record prices," adding Atlanta, Georgia and Guangzhou, China to the league. This is a testament to the smashing success of the debut season, and Activision said it plans to announce other franchise additions in the coming months. The Call of Duty World League also showed increasing popularity, with year-to-date minutes watched up 50% year over year ahead of the championships that will take place in Columbus, Ohio later this month. "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," said Bobby Kotick, chief executive officer of Activision Blizzard. Looking ahead For the upcoming third quarter, Activision expects net revenue of $1.49 billion, a decline of 7.9% year over year. The company is anticipating earnings per share of $0.16, down 36% compared to the prior-year quarter. For the full year, Activision is forecasting revenue of $7.355 billion and adjusted earnings per share of $2.46. For their part, analysts' consensus estimates for the quarter are currently calling for revenue of $1.87 billion and earnings per share of $0.66. For the full year, analysts are expecting revenue of $7.52 billion and adjusted earnings per share of $2.60. The disparity between what the market was expecting and Activision's forecast is probably part of the reason the stock declined following the report. Last quarter, investors were concerned about the guidance that was lower than analysts were expecting. Looking back, those fears were unfounded, as Activision delivered results that even outpaced the $1.49 billion and adjusted earnings of $0.47 per share that analysts were looking for at the time. With esports in its infancy and a number of major launches scheduled for later this year -- on top of a record first half -- Activision and its shareholders have a lot to look forward to.<doc-sep>Activision Blizzard (NASDAQ:ATVI) has been one of the hottest stocks on the market for the last few years, fueled by the growth of mobile games and innovations like esports. But in 2018, it's battling a new trend: the explosion of Epic Games' Fortnite. Next week's second-quarter results will be the first true look at Activision Blizzard's results while competing with Fortnite, now fully scaled into a game with revenue that could impact Activision Blizzard's results. Here's what to watch for from the earnings report. The bar Activision Blizzard set for itself The first thing investors should do is compare Activision Blizzard's results to the guidance given by management on May 3. Here are the details of that forecast. Metric Q2 2018 GAAP Q2 2018 Non-GAAP Net revenue $1.555 billion $1.555 billion Operating margin $21% 31% EPS $0.26 $0.46 Revenue won't be particularly impressive, because most important game releases will be in the second half of the year. But if there's a revenue miss, it could be because another game has taken precedence for consumers. The new video game opponent What investors will really want to know is how Fortnite is impacting Activision Blizzard's engagement and financial results. The game recently passed $1 billion of cumulative revenue, according to SuperData, and is currently on pace for about $4 billion in annual revenue. The engagement side is where I think we would see an impact first. In the first quarter of 2018, monthly active users (MAUs) were 51 million for Activision, 38 million for Blizzard, and 285 million for King. If any of the engagement figures fall by a significant amount (which I would consider 5% or more), it could be cause for alarm. Esports is a success We know that Overwatch League has been a hit with consumers, recently selling out the Barclays Center in Brooklyn for the Overwatch League final. What we don't know is what impact the league will have on Activision Blizzard's financial results. With nearly all of the league's season now behind us, investors should be able to tell if esports will move the needle for Activision Blizzard long term or be a small part of the business. I think it has a chance to be a huge business for those willing to wait for the upside. What's next? There are areas management may touch on that could drive growth for years to come. Esports and plans for an expansion of Overwatch League, or the launch of new leagues would be a welcome discussion. Virtual reality has long been something that Activision Blizzard acknowledged but didn't put significant resources into. Will that change? Finally, guidance for the third quarter and the rest of 2018 will be key, especially now that Fortnite is a sizable business that may be hurting the revenue of other video game companies. As of early May, Activision Blizzard's full-year guidance called for $7.355 billion in revenue and earnings per share of $2.46 on a non-GAAP basis. Any changes higher or lower could have a corresponding effect on Activision's stock price.<doc-sep>This has been a good year so far for video game industry investors. Both Activision Blizzard (NASDAQ:ATVI) and Electronic Arts have trounced the market on optimism about surging demand, rising profit margins, and the bright outlook for new business lines such as advertising and esports. That widespread optimism raises the stakes for Activision's fiscal second-quarter report that's due out after the market closes on Thursday, August 2. Below, we'll look at the key trends that investors will be watching in the upcoming announcement. Core growth metrics Activision's long-term growth depends on its ability to attract a bigger pool of gamers to its franchises while convincing them to spend more time interacting with its titles. That's why the company closely tracks both its audience size and engagement levels. Overall reach has been trending lower for over a year, but that's mostly due to expected declines within the King Digital casual-gaming segment. In fact, the Activision and Blizzard divisions kept their gamer pools even at 89 million players last quarter despite the lack of any major new title releases. King Digital, on the other hand, saw its user base plunge to 285 million from 342 million in the prior year. The good news is that these declines have slowed in recent quarters and investors will be looking for further stabilization in this segment on Thursday. While King's audience is shrinking, the remaining group is highly engaged, just as it is for both the Activision and Blizzard segments. Daily time spent playing King's casual games set a record last quarter, and the company saw similar benefits from its hit Overwatch sports league in the Blizzard division. Look for CEO Bobby Kotick and his team to give new details on these engagement initiatives in the upcoming report. Profitability Several positive trends are combining to push Activision's profitability higher. There's the stampede toward digital revenue, for example: The company's digital sales soared to $1.2 billion last quarter from $1.07 billion a year ago. Activision is doing everything it can to protect that positive momentum, including making more of its games available for full download, churning out episodic content, and promoting subscription services and microtransactions. The digital shift also is lifting the lifetime value of any given title, since, thanks to regular content releases, Activision can keep a game fresh for players for many months following its initial release. Cutting against these profitability gains are investments that the company is making in growth initiatives like esports leagues, consumer products, and its proprietary digital-sales platform. The developer also will likely book elevated expenses this quarter related to product releases set for later in the year. Overall, management is targeting a healthy operating margin of 31% of revenue. The 2018 outlook Management took a cautious approach to updating the company's 2018 outlook last quarter, with a tweak which executives admitted was modest. The main reason for the restraint was that the first quarter amounts to just a small portion of Activision's expected sales and profits for the year. With another quarter in the books, executives could take the opportunity on Thursday to make a bolder adjustment to its full-year forecast. But investors shouldn't get their hopes up for a dramatic revision. After all, the cadence of the company's game title releases will ensure that its 2018 results are more heavily tilted toward the second half of the year than usual. Thus, shareholders likely will have to wait until after Activision's next quarterly release before a clearer picture emerges on its short-term business trends.<doc-sep>
The second quarter was another great one for Activision Blizzard (NASDAQ:ATVI). The video game company beat its own guidance and showed growth in key markets. Still, maybe the best news is that the success of the wildly popular game Fortnite hasn't taken a meaningful bite out of the business. Here's a look at the key results from the latest report. Activision Blizzard: The raw numbers Metric Q2 2018 Q2 2017 YOY Change Revenue $1.64 billion $1.63 billion 0.6% Net income $402 million $243 million 65.4% Diluted earnings per share $0.52 $0.32 62.5% What happened this quarter? The headline numbers don't really tell the full story, so let's dive into some key engagement and segment results. First, audience reach gives investors an idea of how many people are engaged with Activision Blizzard's content, and there was some poor news on that front. The Activision division's monthly active users (MAUs) fell from 51 million in the first quarter to 45 million in the second quarter. Blizzard lost one million MAUs, reporting 37 million, and King's result fell from 285 million to 270 million MAUs. The losses are a little concerning, but as new releases come out later this year, the trend should turn positive. Activision segment revenue was up 7% versus a year ago to $338 million in the quarter, and operating income in the segment came in at $84 million. The company probably won't see a surge in revenue until Call of Duty: Black Ops 4 is released in October. Meanwhile, Blizzard revenue fell 14% to $489 million, and operating income was $133 million in the quarter. Management expects revenue to rise in the second half of the year after the release of World of Warcraft: Battle for Azeroth. King's revenue grew 5% to $502 million, and operating income was $169 million. Candy Crush continues to be a strong franchise with net bookings up double digits over a year ago. There was also some Overwatch League news announced alongside earnings. Two teams have been added to the 2019 season, with Cox Enterprises leading the Atlanta franchise and Nenking Group owning the Guangzhou, China, franchise. This should bolster the highly successful esports business, and management thinks more franchises will be added in coming months. What management had to say The traditional game business continues to churn out cash, but the growth may be in esports for the foreseeable future. COO Coddy Johnson had this to say about the opportunity: [W]e saw significant engagement in particular around esports with interest in the playoffs and championships for the Overwatch League running above even our own high expectations. In the Call of Duty world, they continued to enjoy momentum with minutes watched up 50% year over year and now heads into its own championships later this month in Columbus, Ohio. With MAUs down sequentially, it'll be important to boost engagement with existing consumers. Adding teams is a piece of that puzzle, and over the next few months, we should see more revenue opportunities announced, including advertising deals. Looking forward Management gave third-quarter revenue guidance of $1.49 billion and earnings per share guidance of $0.16 on a GAAP basis and $0.37 on a non-GAAP basis. For the full year, revenue is expected to be $7.36 billion with GAAP earnings of $1.84 per share and non-GAAP at $2.46. Activision Blizzard has a long history of outperforming its guidance, but that's the bar they've set at the moment. What I'll be watching in coming quarters is the MAU trends given popularity of competing titles like Fortnite. It may impact new launches coming later this year, for better or worse. Whether the title grows the pie for the entire industry or claims more market share for itself, it will be an important focus for the foreseeable future.