Activision Blizzard Q2 FY20 (ATVI)
Looking back on my initial assessment of the ATVI stock, things were near the lowest they had been since 2016 before the stock started its ascension. Since then, ATVI has reached an all time high and this comes despite of and possibly due to covid-19. ATVI has over double since March 2019 but what has caused this constant success, how has the company fared so far during the pandemic and what’s the companies outlook going forward.
Call of Duty will forever and always be the double edged sword in the portfolio of ATVI. When things are going well, then it’s fantastic but if things start to slump then it’s hard for the whole company not to feel the effects. Looking back slightly over a year when the stock price was at its lowest in years, the fatigue had not only set in on the series but other people were know starting to eat its lunch. The Battle Royale genre was in full swing with Fortnite and PUBG near the top, and although Treyarch did their best in a short time frame with the Black Ops 4 BR mode Blackout, it failed to catch on with the same level of success as the others. Even the new kid on the block Apex Legends from Respawn was able to get a foot in the door and carve out a large portion for itself. Call of Duty has always seen massive success during the launch window but has always had trouble remaining relevant until the next release.
Call of Duty Modern Warfare not only helped reboot the series with a engine overhaul the series needed but it also waited until early March to release as a standalone, free to play and cross play BR to help entice new people back to the series and keep the core audience engaged. In the first twenty four hours of availability, the standalone Warzone was downloaded six million times and not to spoil the earnings report but has been downloaded by over seventy five million users. How does the success of Call of Duty and Warzone translate to success for ATVI?
Overall, ATVI announced record results for a second quarter including revenue of 1.93 billion, which is well over the projected 1.69 billion. ATVI understands that the main component behind these record breaking numbers is the year on year growth from the Call of Duty franchise. In the second quarter alone and not including the period that Warzone launched hours played in Modern Warfare increased eight fold year on year with combined new and existing players.
As mentioned Call of Duty has always been about big launch periods but this past quarter the series was able to add more players than ever before for the series outside of the launch window. Lastly on the topic of Call of Duty, many people have wondered why we hadn’t heard about the latest upcoming instalment in the series which we normally hear about during the NBA playoffs, which usually happen around May. During the earnings call we got an official statement that the next entry in the series will be a joint effort from Treyarch and Raven, which aligns with the reports that Sledgehammer and their iteration wasn’t coming together as intended.
This will officially break the three studio rotation that has been in place for many years now. The other major titles that can be officially expected from the Activision side of development is the Tony Hawk 1+2 remakes that are being handled by Vicarious Visions and Crash Bandicoot 4 from Toys for Bob.
Over on the Blizzard side of things, the main driver behind the studios success was World of Warcraft which saw reach and engagement increase again Q/Q and according to the report “shelter at home conditions further boosted the franchises strong trajectory”. Looking ahead for Blizzard, they will mostly plan to expand on their existing games with a new expansion for WOW in Q4 and expansions in the upcoming quarters for Hearthstone. New information regarding Diablo Immortal going into company wide play testing in the coming weeks bodes decent for the full release or public beta of the mobile game this fiscal year.
Not only are sales up but total costs and expenses are greatly down leading to a much better net income. In the first half of the fiscal year net income is almost 1.1 billion which is up from the same period in 2019 from 774 million, which is almost an increase of 40%.
It’s not all good news though, as this week Bloomberg ran a story regarding unfair salaries at Blizzard based on an anonymous document that circulated as a revolt against the Irvine, California based company. The story is well worth a read but there are some sad tales about people using the office coffee as an appetite suppressant, employees decided they can’t afford to have children and people skipping lunches with other employees because they can’t afford a meal. All of these stories come as a juxtaposition of the top brass salaries with the CEO making $40 million and ATVI as a company announcing record setting sales figures, what seems like almost every quarter.
Looking forward I think ATVI will continue to see great success, largely in part to call of duty hitting its stride again, WOW getting engagement numbers up again, and shelter in place continuing indefinitely, although I think Blizzard has a Human Resources issue on their hands that is hurting and will continue to hurt the companies goodwill with gamers.