Call of Duty: Modern Warfare outselling Black Ops 4, but Activision Blizzard’s Q3 still down

For the second quarter in a row, Activision Blizzard saw declines across the board, the company revealed as part of its Q3 financials.

Net revenues were down year-over-year (YoY) by 15% for the three months ending September 30, coming in at $1.28 billion. However, this did beat the company’s expected figure for the quarter of $1.1 billion.

Net bookings are down YoY as well at $1.21 billion, a 27% decrease compared to the same period in Q3 2018 where it made $1.66 billion. For the same period last year, it can be noted Activision still had Destiny on its books before the company and developer Bungie parted ways back in January. This was something it touched upon, noting Activision-only revenue for the quarter was at $209 million, a 47% YoY decrease.

Blizzard and King also saw declines, with King revenues coming in at $500 million, a one percent decrease YoY. Blizzard, meanwhile, had a 38% year-over-year decline with $394 million in revenues. It’s worth stressing this figure won’t account for any blowback from the situation involving Blitzchung, Hong Kong and potential boycotts, as that controversy unfolded after the Q3 reporting period ended.

But Activision was bullish about strong performances for some of its latest launches within the Call of Duty franchise. Call of Duty Mobile has seen 100 million downloads, while the return of Modern Warfare has seen first-week sales surpass those set last year by Black Ops 4, with management citing “strong console growth” as well as sales on Battle.net for the PC version “reaching new highs.” That’s on top of the $600 million it generated within the game’s first three days on sale.

The company also cited the launch of World of Warcraft Classic back in August, noting it had seen “the biggest quarterly increase to subscription plans” in WoW’s history for both Western and Eastern audiences.

“Our third quarter results exceeded our prior outlook for both revenue and earnings per share,” said Activision Blizzard CEO Bobby Kotick. “Recent launches have enabled significant growth in the size of our audiences for our Call of Duty and World of Warcraft franchises.

“As we introduce mobile and free-to-play games based on our franchises we believe we can increase audience size, engagement and monetization across our wholly owned franchises. With a strong content pipeline and momentum in mobile, esports and advertising, we are confident we will remain a leader in connecting and engaging the world through epic entertainment.”

Going into Q4, there are definitely challenges ahead for Activision Blizzard, as Wedbush Securities analyst Michael Pachter explained in a note to investors.

“We spoke with management, who pointed out that: the company faces a difficult comp from Call of Duty (console) microtransactions (there are none this year, in contrast to last year’s version); the continuing shift to digital sales as a part of the mix necessarily shifts the amount sold-in to retail into the following quarter; somewhat lower year-over-year monetization for Hearthstone and Candy Crush due to in-game enhancements designed to increase engagement; and some incremental foreign currency translation headwinds,” he said.

Activision’s struggles, and the fact that it laid off 800 people earlier this year, are noteworthy, but Pachter believes that the company’s been positioning itself for growth in the coming year and beyond. 

“Activision can grow bookings by $400 – 500 million next year, and in 2021 Activision should see incremental growth with far greater contribution from its mobile titles, particularly if they launch in China,” Pachter stated. “The company should also see contribution from Diablo IV ($500 million first year contribution) more than offsetting the comparison from the $250 million WoW expansion. In 2022, the launch of Overwatch 2 should comp the revenues generated from Diablo IV the prior year, and catalog sales of that title plus continued mobile growth should drive another $500 million in revenue growth.”

The publisher’s stock has been trading down one percent or so today, at $53.96 as of publish time, but it’s roughly in line with where ATVI’s price was one year ago, after it fell precipitously from a high of $83 last September. Should Pachter’s analysis prove correct, Activision Blizzard should see its stock climbing again in the next couple of years.