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Activision Blizzard - revenue declines in first quarter

First quarter net revenue fell to $1.7 billion from $2.3 billion at the same time last year.

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First quarter net revenue fell to $1.8bn from $2.3bn at the same time last year. That reflects lower premium Call of Duty sales and product cycle timings elsewhere. Lower revenue meant operating profit fell 39.7% to $479m, despite a $191m reduction in total costs and expenses.

The group reiterated that Microsoft's bid to buy Activision Blizzard for $95 per share, has been approved by Activision's board. If the deal gets regulatory and shareholder approval it will complete at the end of Microsoft's 2023 financial year.

The shares were unmoved following the announcement.

View the latest Activision share price and how to deal

Our View

Should the Microsoft deal go ahead, Activision's shareholders will be rewarded with a substantial premium to the share price before the deal was announced.

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. Some will be sad to see Activision fall into new hands as it gifts its potential for long-term growth to someone else.

Until a deal is approved and there's a signature on the dotted line, it's important to remember the bigger picture.

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. For now we're happy to take this as a blip, but a longer run of subdued sentiment may raise eyebrows, with questions about the group's pulling power.

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 it 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 have been growing and are now over 400 million globally. Activision's got experience in the space with the Overwatch League, with 2020's 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 marketing teams to reach, since they consume less traditional media than older generations. That makes esports attractive to advertisers, and advertising revenue can be high margin. We think Call of Duty has the potential to dwarf Overwatch in advertising terms, but it's still early days. Meanwhile news that the King mobile gaming business has managed to grow advertising revenues even as other digital advertisers struggle is encouraging.

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. The biggest catalyst for changes in Activision's valuation at present will be the Microsoft deal, should it not go ahead investors should expect some volatility.

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.

First quarter results

Net bookings on console and PC declined in the Activision business, reflecting lower premium sales for Call of Duty: Vanguard and lower engagement in Call of Duty: Warzone. The group "rapidly" expanded its Call of Duty development resources in the period.

Blizzard was adversely affected by the timing of product cycles, meaning results declined. Development on Diablo 4 and Overwatch 2 is progressing well. King in-game net bookings rose 8%, including double digit growth in Candy Crush - the division's largest franchise.

The group ended the period with a net cash position of around $7.5bn.

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.

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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.

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Article history
Published: 26th April 2022