Activision, Battling Workplace Controversy, Beats Estimates

·4 min read

(Bloomberg) -- Activision Blizzard Inc., the video-game giant currently at the center of controversy over harassment and sexism in the industry, reported quarterly results that beat Wall Street projections and raised its outlook for the year.

The maker of popular games like Call of Duty and World of Warcraft said Tuesday that second-quarter profit excluding some items totaled 91 cents a share. That compared with analysts’ estimates of 75 cents. Adjusted revenue came to $1.92 billion, beating projections of $1.89 billion.

While the results beat estimates, sales edged down from a year ago. The industry is suffering from a hangover after a surge in play a year ago during the early days of the Covid-19 pandemic and lockdown. Rival Take-Two Interactive Software Inc. on Monday issued a tepid forecast for the balance of its year, sending the stock down.

Activision, the largest independent U.S. game maker, is also contending with a legal challenge to the so-called bro culture in games, a term for sexism and harassment in the male-dominated industry.

Such accusations have dogged the business for years and came to the fore again last month when Activision was sued by a California state agency, which alleged women at the company were subjected to constant harassment, unequal pay and retaliation.

In addition, an Activision investor sued the company in federal court in California Tuesday, claiming it knew of the ongoing state investigation into its workplace culture but omitted that from public disclosures.

The company, based in Santa Monica, California, said it’s taking steps to improve the workplace environment. Executives addressed some of the issues on a call with analysts, adding that in addition to hiring an outside law firm to investigate sexism allegations, it would remove “inappropriate” content in its games in response to employee complaints, without being more specific.

Read more: Blizzard faces a culture crisis that runs deep

Earlier Tuesday, Activision announced that J. Allen Brack, president of the Blizzard division, is leaving the company, along with a human resources executive from the unit, Jesse Meschuk. Many of the allegations in the state suit took place before Brack was named to the post. Blizzard accounted for about a fourth of Activision’s $8.01 billion in sales last year.

The company named Jen Oneal, an 18-year Activision veteran, and former Microsoft Corp. executive Mike Ybarra, who came aboard two years ago, as new leaders of the division.

Some analysts asked management during the earnings call if the turmoil caused by the suit and lower employee morale would affect productivity. Oneal, the lone female speaker among about half a dozen men the company made available for questions, didn’t address the issue directly but said she was seeing “great progress.”

“There’s a lot of work ahead of us but the passion and productivity are already here,” she said. “And when our people feel safe and supported the rest is going to take care of itself.”

Activision shares rose as much as 6.2% in extended trading after the results were announced. The stock lost 3.5% to $79.83 at the close in New York. In addition to the Take-Two news yesterday, game stocks were hurt by comments from the Chinese state media, which described their products as “spiritual opium” that needed to be reined in. Tencent Holdings Ltd., China’s most valuable company, fell 6.2%.

Internal Review

Bobby Kotick, Activision’s chief executive officer for three decades, said in late July the company has hired the law firm WilmerHale to review the company’s policies, admitting management had been tone deaf.

Hundreds of employees turned out last week in front of Activision offices to show their support for the lawsuit and to protest the company’s response.

Kotick, 58, has also faced investor criticism over his pay, which amounted to $154.6 million last year, mostly in the form of multiyear stock awards.

The company took the unusual step of prolonging the say-on-pay referendum after its annual meeting in June before announcing it was narrowly approved. Activision complained of “misleading” information that may have swayed shareholders against its executive compensation plan.

For the third quarter, Activision predicts earnings of 65 cents a share, excluding items, 10 cents short of Wall Street estimates. Sales will be $1.85 billion, above analysts’ views. The company now predicts full-year profit of $3.76 a share and revenue of $8.65 billion, both up from its projection three months ago.

(Updates with comments from earnings call in seventh paragraph.)

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