Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Activision Blizzard - 28% fall in second quarter revenue

Activision Blizzard has reported a 28.4% decline in second quarter revenue, to $1.6bn.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Activision Blizzard has reported a 28.4% decline in second quarter revenue, to $1.6bn. That marks a second consecutive quarter of declines, but was broadly in line with consensus estimates.

Costs were broadly flat at $1.3bn. As such, the lower revenue meant operating profits fell by two thirds to $338m.

The proposed takeover by Microsoft is ongoing, and is still subject to certain approvals. While the deal's pending, Activision isn't giving any forward guidance.

The shares were unmoved in pre-market trading, following the announcement.

View the latest Activision share price and how to deal

Our View

Microsoft's proposed $95 per share cash takeover of Activision Blizzard remains around a 20% premium to the group's valuation. Current attitudes towards the stock rest quite heavily on the deal going through. But with multiple regulators reviewing the transaction, it's not a done deal. Revenue declines, and a price to earnings ratio above the 10 year average increase downside risk if Microsoft fails in its takeover attempt.

We can understand Microsoft's bid. The group's swooping in to grab some of the world's most valuable gaming intellectual property, at a time when Activision's shares have suffered after allegations of unsavoury management behaviour and corporate culture. The gaming industry is enjoying huge popularity, and this is only expected to grow.

Until a there's a signature on the dotted line, we must judge Activision on its own merits.

The pandemic steam-rolled Activision Blizzard onto a path of impressive growth. Stay at home orders boosted demand for the Call of Duty maker's content. While that would always make successive periods harder by comparison, the fall in engagement has been disappointing. All eyes will be on the forthcoming content releases across ATVI's titles as to whether this trend can be reversed.

Historically, on top of the infamously popular Call of Duty franchise, World of Warcraft has consistently proven its popularity since its release, and Candy Crush remains among the most lucrative mobile games in the US. Plus, the majority of sales are digital, which is a high-margin source of revenue.

Unlike some rivals, Activision Blizzard owns its most powerful brands outright, so doesn't have to share success with licence holders. That's allowed the group to rapidly expand its brands into new formats and underpins planned esports expansions.

Esports see professional gamers compete live, with fans watching on TV, online or in stadiums. Audiences are now over 400 million globally. Activision's got experience in the space with the Overwatch League, with the 2020 grand finals attracting 1.6m viewers. In the past, 70% of viewers have fallen in the 18-34 year old age bracket.

Millennials are a difficult group for marketeers to reach, since they consume less traditional media than older generations. The advent of interactive social media means that when this demographic does interact with media, engagement levels can be higher. That makes esports attractive to advertisers, and advertising revenue can be high margin.

Gaming is going through significant change though, with consoles giving way to cloud-based gaming and the marketplace getting increasingly crowded. It's possible that the next generation of games consoles will be the last, and change is always more difficult for incumbents. However, a premium catalogue of games comes with a premium price tag and a large user base. Under its own steam, that is a base Activision is currently struggling to grow.

Activision Blizzard key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Second quarter results

On a divisional basis, Activision saw the largest revenue decline, some $299m to $490m, driving a $271m reduction in operating profit to $92m. The group said this reflected lower levels of engagement for the Call of Duty franchise, but the company has high hopes for the release of Call of Duty: Modern Warfare II, expected in towards the end of the year.

Revenues at Blizzard were down 7.4% to $401m, although profits decreased at a faster rate, with operating income down 33% to $94m. Year-over-year growth for Hearthstone® and the contribution from the June launch of Diablo Immortal were not enough to offset weaker bookings from World of Warcraft, with last year's comparative period including a significant product launch.

King was Activision Blizzard's best performer with revenues up nearly 8% to $684m and operating profit up 9.3% to $271m, and margin nudging towards 40%. Growth was driven by Candy Crush™, King's largest franchise.

Overall, mobile and ancillary was the only category to grow revenues, up 5% to $831m, compared to 47% and 49% declines across PC and console respectively. As such mobile and ancillary revenues made up 51% of the total up from just 35%. Monthly Active Users in June were down 11.5% to 361m.

The group completed the acquisitions of Proletariat and Peltarion in the quarter. Headcount was up 25% compared to last year.

Quarterly underlying free cash flow of $161m was down 57%, reflecting the May dividend payment. Activision Blizzard ended the period with net cash of approximately $7.1bn.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 2nd August 2022