By Sarah E. Needleman
Activision Blizzard Inc. on Thursday turned in a lackluster
report for the holiday quarter, which included a rare miss on
analyst profit forecasts.
Investors punished the company's stock in return. Shares of
Activision, which had rallied from around $28 a share in price to
near $40 in the final months of last year, tumbled by as much as
18% in after-hours trading on Thursday. In recent trade, the stock
price was down 13.5%.
Activision reported that adjusted profit fell in the fourth
quarter to 83 cents a share from 94 cents a year ago. Analysts had
forecast 86 cents, while the company expected 82 cents.
The company hasn't missed on analyst per-share profit
expectations in about five years, according to Colin Sebastian, an
analyst at R.W. Baird & Co. "This market is unforgiving right
now," he said. "There's an exaggerated reaction to misses because
there's a lot of uncertainty."
Along with the profit miss, Activision announced a delay to the
sequel of a key game, while results slumped at King Digital
Entertainment PLC, the mobile game maker Activision is
acquiring.
The company had expected adjusted revenue in the fourth quarter,
which is the important holiday period, to be flat at $2.15 billion,
since it released a similar holiday slate of games a year earlier,
including a fresh "Call of Duty" installment. Instead, adjusted
revenue fell roughly 4% to $2.12 billion.
Videogame companies, as well as Wall Street, focus on adjusted
results because under U.S. accounting rules, revenue for
online-enabled games is deferred as long as new content is being
added.
Meanwhile, the impact of a strong U.S. dollar trimmed $125
million from revenue and 11 cents a share in profit, Activision
added.
Activision also partly blamed a soft showing from casual games,
such as "Skylanders SuperChargers," for its subpar fourth quarter.
Stores were filled this past Christmas with toys-to-life
competitors, such as an "Infinity" game from Walt Disney Co.
featuring "Star Wars" characters and a new entrant from Lego A/S
called "Dimensions" that included Batman.
Casual players are also shifting to mobile devices, hurting
console games such as "Guitar Hero Live," the company said.
Activision has taken steps to expand beyond its core business of
console gaming, including the $5.9 billion acquisition of King,
which has one of the world's most successful mobile franchises in
"Candy Crush." The deal, which is expected to be completed later
this month, gives Activision a stronger foothold in the
fast-growing mobile-games business. Once completed, Activision said
it would have 500 million monthly active users, up from 80
million.
But Activision faces challenges in growing King beyond its
"Candy Crush" fame. For the fourth quarter, King on Thursday
reported revenue, profit and a user base that were lower than a
year earlier. Spending by players in newer games was increasing,
but not enough to offset a drop in spending on older games,
particularly "Candy Crush Saga," King said.
King, which will continue to operate as an independent unit
under CEO Riccardo Zacconi after the acquisition is final, posted
$478 million in adjusted revenue and per-share profit of 38 cents
for the holiday quarter. That was down from $559 million and 57
cents a share a year ago. Adjusted bookings tumbled 13% to $509
million. Monthly unique payers fell 21% to 6.58 million.
Still, Activision expects a brighter 2016, with adjusted revenue
of $6.25 billion and per-share profit of $1.75, well above the
$4.62 billion in adjusted revenue and $1.32 in per-share profit
earned in 2015.
On a conference call with analysts, Chief Executive Bobby Kotick
reiterated that Activision views itself as a broad entertainment
company. He described its customer base as comparable to that of
major social and entertainment giants such as Facebook Inc., ESPN
and the National Football League.
To illustrate that point, he highlighted the King acquisition
and that of "e-sports" producer and broadcaster Major League Gaming
Inc. He said they were key to growing monthly active users as well
as the number of hours people spend watching the company's
content.
Other company executives on the call also talked up the release
of "Overwatch," a new franchise coming in 2016 that is integral to
the company's e-sports expansion. At the same time, though,
Activision said it was pushing back a sequel to the smash hit
"Destiny" to 2017.
Rising demand for content delivered over the Internet helped
boost digital sales to a high for the holiday period, Activision
said. For example, the company sold nearly double as many digital
downloads of "Call of Duty: Black Ops III" as it did with the
series' prior installment, "Advanced Warfare," released a year
earlier.
Adjusted digital revenue reached a record $780 million,
accounting for a record 37% of total adjusted revenue. Rivals
Electronic Arts Inc. and Take-Two Interactive Software Inc. in
recent days also reported strong digital revenue, a boon for profit
margins.
Under generally accepted accounting principles, Activision
reported fourth-quarter revenue of $1.35 billion and a profit of 21
cents a share, down from $1.58 billion and 49 cents a share a year
earlier.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
February 11, 2016 19:36 ET (00:36 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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