Activision Blizzard's Momentum Continues With Blowout Third Quarter
A steady stream of game updates and other services drove a blowout quarter for Activision Blizzard (NASDAQ: ATVI). Management annihilated its original revenue guidance, generating $1.62 billion in revenue against a target of $1.38 billion. The company also reported a massive beat on non-GAAP (adjusted) earnings per share, exceeding the original guidance of $0.34 per share by $0.13.
Here's how Activision did it.
Image source: CallOfDuty.com.
Record player engagement
The company reached a new record of over 50 minutes of daily time spent per user, which placed Activision Blizzard's content during the quarter on par with Facebook and other social media.
Activision reached a record 49 million monthly active users (MAUs). This was driven by the release of Destiny 2 and strong performance of the Call of Duty franchise. This gives Activision a good tailwind for the fourth quarter with the early November launch of the new Call of Duty: World War II, which is expected to be another blockbuster release.
The Blizzard side also reached a record high in Q3 MAUs with 42 million, driven by Overwatch and Hearthstone. This marked the fourth consecutive quarter of new record highs for MAUs without a new game release, reflecting the company's strategy to generate year-round engagement and revenue through a steady flow of content updates for existing games.
Overwatch is arguably the company's most important franchise, given its presence in key growth areas of esports and consumer products, where management sees a lot of growth potential. The player base continues to grow, reaching more than 35 million in the quarter. The popular shooter had its Summer Games seasonal event in Q3 and the Halloween Terror event in October. These events introduce special seasonal themed content, which is great for attracting new players and driving higher participation from existing players.
King's mobile games delivered strong growth
Activision's mobile game maker -- King -- continues to prove its value to the overall business with double-digit growth. King segment revenue increased 15% year over year to $528 million, and operating income grew 50% year over year.
King's MAUs continued to trend downward, falling to 293 million in the quarter. This has been an ongoing trend for several quarters, but it shouldn't be worrisome to investors. The company has reported that this is due partly to the maturity of King's titles and also to less engaged players leaving the base. The most important thing for King is the number of players who spend money on in-game content. That figure increased for the first time since early 2016, which contributed to King's solid financial results in the quarter.
Management raises guidance
The strong momentum in the third quarter caused management to raise its full-year guidance for 2017. Revenue is expected to be $6.675 billion for the year. On a non-GAAP basis, management is calling for earnings per share to be $2.08. This would be down from last year's $2.18 per share due to a light year for new game releases.
The current holiday quarter is getting into full swing with recent blockbuster releases of Destiny 2 and Call of Duty: World War II. Destiny 2, launched on consoles in September, has already become the top-selling console title for 2017. It just released on PC for the first time in October, which should attract a new wave of players in Q4. Pre-order trends are looking solid for the new Call of Duty, so it should be a strong finish to the year.
2018 is expected to be another strong year
Activision is clearly going to finish 2017 on a high note, which is important heading into 2018. Early analyst estimates for 2018 are forecasting the company to generate record revenue and earnings as Activision launches Overwatch League, King in-game advertising, as well as a full year of new content updates for the potential tens of millions of gamers who will play Destiny 2 and Call of Duty: World War II.
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John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Facebook. The Motley Fool has a disclosure policy.
