Why you should still care about Activision Blizzard’s share price

Despite underwhelming Q3 earnings results, Activision Blizzard’s expansion into mobile gaming could deliver growth.

Activision Blizzard (ATVI) was already having a bad week when it revealed underwhelming Q3 results on Thursday.

Last week’s announcement that the Diablo franchise was coming to smartphone in the guise of Diablo Immortal was met with the ire of franchise fans, many of whom hardened PC diehards.

Some even went as far as to launch a petition on change.org.

Investors took notice, dumping the stock which led to fall of over 7% in the share price on Monday.

What happened during the earnings call?

Q3’s underwhelming earnings announcement hasn’t helped. Active users of its online services came in at 345 million, a fall of 10 million from the previous earnings call.

A heavy hit for Activision which owns the MMORPG World of War Craft and the just released online only Call of Duty: Black Ops 4.

At least revenue of $1.6billion was in-line with expectations. And in one bright spot, adjusted earnings per share climbed to 52 cents from last quarters 50 cents.

Guidance for Q4 revenues was $3.5billion, missing Wall Street expectations.

By the end of Friday’s session, the share price was at $55.01, down a miserable 15% from where it had been on Wednesday’s close. Only as far back as 2 October the stock had been at a year high of $83.39.

Activision Blizzard Share Price (Source: Yahoo! Finance, 9.11.2018)

What next?

Call of Duty: Black Ops 4 was Activation’s big winter game. However physical sales have lagged behind other entries in the franchise. With the game’s sole focus on online multiplayer, something of a gamble for the publisher,  the dip in active online users is not encouraging.

Destiny 2, another predominantly online game, has also failed to deliver for the publisher. During the call Activision COO Coddy Johnson said:

“We have not yet seen the full core re-engage in Destiny, which has led to the underperformance against expectations to date.”

This is a big problem for Activision and even the well-received expansion pack Forsaken seems like too little too late.

Upcoming updates for World of War Craft  probably won’t be enough to satisfy investors looking for a substantial turnaround in share price that only a new game can bring.

Yet, next year’s slate looks also looks pretty bare, with only Sekiro: Shadows Die Twice and, probably, another Call of Duty on the cards for consoles.

Why you should still care

Despite the uproar over Diablo Immortal, the move to smartphone gaming might provide significant upside for the share price. With its focus on the Chinese market, where mobile gaming rules, it could tap into a huge customer base beyond Diablo‘s traditional  PC gaming crowd. There’s also the potential for  recurrent spending (micro transactions to you and me), now one of the most sought-after metrics for any publisher.

Whatever western pc gamers think might prove to be an irrelevance once sales figures come in when the game is released next year.