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Activision's (ATVI) Q3 Earnings Decline Y/Y on Weak Revenues

Activision Blizzard ATVI reported third-quarter 2019 non-GAAP earnings of 38 cents per share that declined 9.5% year over year.

Consolidated revenues declined 15.2% year over year to $1.28 billion. Adjusting for revenues from non-reportable segments, net effect from recognition of deferred revenues and intersegment eliminations segment revenues declined 28.3% to $1.10 billion.

The Zacks Consensus Estimate for earnings and revenues was pegged at 25 cents and $1.17 billion, respectively.

Top-Line Details

Segment-wise, product sales (20.3% of consolidated revenues) were $260 million, down 1.1% year over year. Subscription, licensing and other revenues (79.7% of revenues) decreased 18.2% to $1.02 billion.

Based on distribution channels, Activision reported retail channel sales of $93 million, up 22.4% year over year. Other revenues increased 9.4% year over year to $175 million. However, digital online revenues of $1.02 billion fell 20.5% from the year-ago quarter.

Activision Blizzard, Inc Price, Consensus and EPS Surprise

Activision Blizzard, Inc Price, Consensus and EPS Surprise

Activision Blizzard, Inc price-consensus-eps-surprise-chart | Activision Blizzard, Inc Quote

Further, on the basis of platforms, revenues from mobile and ancillary (41% of consolidated revenues) increased 0.4% year over year to $525 million. However, revenues from console (18.8% of consolidated revenues) decreased 30.5% year over year to $241 million. Additionally, PC revenues (26.6% of consolidated revenues) declined 29.3% year over year to $341 million.

On a geographic basis, revenues from Americas (51.1% of consolidated revenues) decreased 15.4% year over year to $655 million. Europe, Middle East and Africa (EMEA) revenues (35.3% of consolidated revenues) declined 15.4% year over year to $452 million. Moreover, revenues from the Asia Pacific (13.7% of consolidated revenues) fell 14.2% to $175 million.

Activision Blizzard’s net bookings decreased 27.1% year over year to $1.21 billion. Net bookings from digital channels were $980 million, down 31.9% from the year-ago quarter.

Notably, in-game net bookings were $710 million in the reported quarter.

Segment & User Base Details

Activision Blizzard had 316 million monthly active users (MAUs) at the end of the reported quarter.

Activision (18.9% of segment revenues) revenues decreased 47.4% year over year to $209 million. The division had 36 million MAUs.

Call of Duty: Black Ops 4 net bookings from in-game items grew sharply versus Call of Duty: WWII in the third quarter of 2018.

Crash Team Racing: Nitro-Fueled generated strong sales, particularly through the digital channel.

Blizzard (35.7% of segment revenues) revenues of $394 million declined 38% from the year-ago quarter. Blizzard had 33 million MAUs.

World of Warcraft: Classic subscribers increased as the company added a record number of subscription plans in the third quarter.

The Overwatch League Season Two average minute audience grew 18% year over year.

King’s (45.3% of segment revenues) revenues of $500 million declined 1.2% year over year. MAUs were 247 million. Candy Crush MAUs increased year over year, driven by growth in Candy Crush Saga and the addition of Candy Crush Friends Saga.

Notably, King’s Candy Crush was the top-grossing franchise on U.S. mobile app stores in the reported quarter, per App Annie Intelligence, quoted by Activision.

Candy Crush franchise revenues grew year over year with the ads business almost doubling over the same period.

Operating Details

Product development expenses declined 20.2% year over year to $210 million. Also, sales & marketing and general & administrative expenses decreased 30.8% and 14.9% year over year to $182 million and $177 million, respectively.

Total costs & expenses on a non-GAAP basis declined 16.1% year over year to $930 million in the reported quarter.

On a non-GAAP basis, operating income was $352 million, down 12.7% year over year.

Guidance

For fourth-quarter 2019, Activision Blizzard expects non-GAAP revenues of $1.81 billion and earnings of 43 cents per share. Net bookings are expected to be $2.65 billion.

The Zacks Consensus Estimate for revenues and earnings is pegged at $2.76 billion and $1.28, respectively.

For 2019, Activision Blizzard anticipates non-GAAP revenues of $6.31 billion and earnings $2.13 per share. Net bookings are expected to be $6.33 billion.

The consensus mark for revenues and earnings is pegged at $6.40 billion and $2.22, respectively.

Zacks Rank & Other Stocks to Consider

Activision Blizzard currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks include Twin River Worldwide Holdings TRWH, Cumulus Media CMLS and Liberty Broadband Corporation LBRDK, each with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Twin River Worldwide, Cumulus Media and Liberty Broadband are all set to report their quarterly earnings on Nov 11.

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