Activision (ATVI) Q1 Earnings Decline Y/Y Despite MAU Growth
Activision Blizzard’s ATVI first-quarter 2020 non-GAAP earnings of 76 cents per share declined 2.6% year over year.
Consolidated revenues dipped 4.9% year over year to $1.74 billion. Adjusting for net effect from the recognition of deferred revenues, total revenues jumped 23.4% to $1.47 billion.
The Zacks Consensus Estimate for earnings and revenues was pegged at 39 cents per share and $1.32 billion, respectively.
For the quarter ended Mar 31, 2020, overall Monthly Active Users (MAUs) were 407 million compared with 345 million as of Mar 31, 2019.
Activision Blizzard’s net bookings increased 21% year over year to $1.52 billion. Net bookings from digital channels were $1.36 billion, up 27.1% year over year.
Notably, in-game net bookings were $956 million, up 20.4% year over year.
Activision Blizzard, Inc Price, Consensus and EPS Surprise
Activision Blizzard, Inc price-consensus-eps-surprise-chart | Activision Blizzard, Inc Quote
Top-Line Details
Robust performance from Call of Duty and World of Warcraft drove first-quarter results. Call of Duty benefited from the launch of Call of Duty: Warzone on Mar 10, 2020. Solid demand for games amid coronavirus-led lockdowns and enforcement of shelter-at-home guidelines was witnessed in the reported quarter.
Segmentwise, product sales (31.3% of consolidated revenues) were $543 million, down 17.2% year over year. Subscription, licensing and other revenues (71.8% of revenues) increased 6.5% to $1.25 billion.
Based on distribution channels, Activision Blizzard reported retail channel sales of $221 million, down 29.4% year over year. However, digital online revenues of $1.44 billion were up 3.4% from the year-ago quarter. Other revenues improved 5.9% year over year to $126 million.
Further, on the basis of platforms, revenues from mobile and ancillary (31.9% of consolidated revenues) rose 6.5% year over year to $570 million. Additionally, PC and other revenues (28.7% of consolidated revenues) inched up 0.8% year over year to $498 million. However, revenues from console (34.2% of consolidated revenues) decreased 12.3% year over year to $594 million.
On a geographic basis, revenues from the Americas (54.6% of consolidated revenues) slipped 4% year over year to $948 million. Europe, the Middle East and Africa (EMEA) revenues (32.6% of consolidated revenues) fell 7.8% year over year to $566 million. However, revenues from the Asia Pacific (15.8% of consolidated revenues) jumped 22.9% year over year to $274 million.
Segment Details
Activision (35.3% of segmental revenues) revenues surged 63.7% year over year to $519 million. The division had 102 million MAUs as of Mar 31, 2020 compared with 41 million as of Mar 31, 2019.
Call of Duty: Warzone reached more than 60 million players to date. Further, Call of Duty: Modern Warfare in-game net bookings more than doubled year over year compared with Black Ops 4.
Call of Duty Mobile continued with its momentum in the quarter under review.
Blizzard (30.8% of segment revenues) revenues of $452 million increased 31.4% from the year-ago quarter. Blizzard had 32 million MAUs as of Mar 31, 2020, unchanged year over year.
World of Warcraft’s active player community continued to increase in the first quarter, driven by both new and returning players. Blizzard’s key franchises experienced a month-over-month increase in MAUs in March as more and more people stayed at home during the period.
Moreover, Hearthstone engagement improved sequentially, driven by the new Battlegrounds game mode launched in November 2019. Further, Overwatch engagement increased meaningfully in March. Additionally, the Overwatch League successfully moved to online play and remote production during the quarter.
King’s (33.9% of segment revenues) revenues of $498 million declined 5.9% year over year. MAUs were 273 million as of Mar 31, 2020 compared with 272 million as of Mar 31, 2019.
Candy Crush franchise MAUs grew year over year in each month of the quarter with a double-digit spike recorded in March. Candy Crush Saga and the wider Candy Crush franchise were once again the top-grossing title and franchise in the U.S. mobile app stores.
Advertising net bookings soared 75% year over year in the first quarter.
Operating Details
Product development expense increased 0.4% year over year to $230 million. Sales & marketing expenses were $236 million, up 16.3% year over year.
However, general & administrative expenses decreased 4.7% year over year to $142 million.
Total costs & expenses on a non-GAAP basis slid 0.4% year over year to $1.08 billion in the reported quarter.
On a non-GAAP basis, operating income was $711 million, down 4.4% year over year.
Balance Sheet & Cash Flow
As of Mar 31, 2020, cash and cash equivalents were $5.91 billion compared with $5.79 billion as of Dec 31, 2019.
Long term debt as of Mar 31, 2020 was $2.68 billion, flat sequentially.
Operating cash flow plunged 67% year over year to $148 million. Free cash flow fell 70% year over year to $129 million.
On a trailing-12 month (TTM) basis, free cash flow declined 11% to $1.41 billion.
Activision Blizzard declared a cash dividend of 41 cents per share, payable May 6, 2020 to its shareholders of record as of Apr 15. The payout represents an 11% hike from the 2019-level.
Guidance
For second-quarter 2020, Activision Blizzard expects non-GAAP revenues of $1.69 billion and earnings of 64 cents per share. Net bookings are expected to be $1.68 billion.
The Zacks Consensus Estimate for revenues and earnings is pegged at $1.29 billion and 37 cents per share, respectively. Revenues are estimated to grow 6.5% while earnings are expected to decline 2.6% from the respective figures reported in the year-ago quarter.
For 2020, Activision Blizzard anticipates non-GAAP revenues of $6.80 billion and earnings of $2.62 per share. Net bookings are expected to be $6.9 billion. Appreciation of the U.S. dollar is expected to hurt full-year net bookings by $100 million.
Moreover, strengthening of the U.S. dollar and lower interest income are expected to affect 2020 earnings by 8 cents.
The consensus mark for revenues and earnings is pegged at $6.79 billion and $2.48 per share, respectively. Revenues and earnings are estimated to grow 6.3% and 10.2% each year over year.
Zacks Rank & Other Stocks to Consider
Activision Blizzard currently carries a Zacks Rank #2 (Buy). Vista Outdoor VSTO, DISH Corporation DISH and Roku ROKU are a few other stocks worth considering in the broader Consumer & Discretionary sector. While Vista Outdoor sports a Zacks Rank #1 (Strong Buy), both DISH and Roku carry the same Zacks Rank as Activision Blizzard. You can see the complete list of today’s Zacks #1 Rank stocks here.
All three stocks are scheduled to report quarterly results on May 7.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
DISH Network Corporation (DISH) : Free Stock Analysis Report
Vista Outdoor Inc. (VSTO) : Free Stock Analysis Report
Roku, Inc. (ROKU) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
