Activision's (ATVI) Q2 Earnings Decline Y/Y On Weak Revenues

Activision Blizzard (NASDAQ:ATVI) reported second-quarter 2019 non-GAAP earnings of 53 cents per share that declined 59.5% year over year.

Consolidated revenues declined 14.9% year over year to $1.40 billion. Adjusting for revenues from non-reportable segments, net effect from recognition of deferred revenues and intersegment eliminations segment revenues declined 13.4% to $1.15 billion.

The Zacks Consensus Estimate for earnings and revenues was pegged at 26 cents and $1.20 billion, respectively.

Notably, GAAP net revenues from digital channels were $1.09 billion in the reported quarter.

Top-Line Details

Segment-wise, product sales (25.7% of consolidated revenues) were $359 million, down 22.6% year over year. Subscription, licensing and other revenues (74.3% of revenues) decreased 11.9% to $1.04 billion.

Based on distribution channels, Activision reported retail channel sales of $193 million, down 30.6% year over year. Digital online revenues of $1.09 billion fell 13.7% from the year-ago quarter. However, other revenues increased 12.5% year over year to $117 million.

Further, on the basis of platforms, revenues from mobile and ancillary (36.6% of consolidated revenues) declined 1.9% year over year to $511 million. Revenues from console (29.2% of consolidated revenues) decreased 28% year over year to $407 million. Additionally, PC revenues (25.9% of consolidated revenues) declined 4.8% year over year to $494 million.

On a geographic basis, revenues from Americas (54.7% of consolidated revenues) decreased 15.1% year over year to $764 million. Europe, Middle East and Africa (EMEA) revenues (32.9% of consolidated revenues) declined 16.8% year over year to $459 million. However, revenues from the Asia Pacific (12.4% of consolidated revenues) fell 8.5% to $173 million.

Activision Blizzard’s net bookings decreased 12.3% year over year to $1.21 billion. Net bookings from digital channels were $1.01 billion, down 15.8% from the year-ago quarter.

Notably, in-game net bookings were $800 million in the reported quarter.

Segment & User Base Details

Activision Blizzard had 327 million Monthly Active Users (MAUs) at the end of the reported quarter.

Activision (23.3% of segment revenues) revenues decreased 20.7% year over year to $268 million. The division had 37 million MAUs.

Call of Duty: Black Ops 4 MAUs grew year over year compared with Call of Duty: WWII, and hours played increased more than 50%.

Crash Team Racing: Nitro-Fueled received positive critical reviews and generated strong sales, particularly through the digital channel.

Blizzard (33.4% of segment revenues) revenues of $384 million declined 21.5% from the year-ago quarter. Blizzard had 32 million MAUs.

Hearthstone MAUs grew sequentially following the release of the Rise of Shadows expansion pack and The Dalaran Heist single-player adventure.

Overwatch MAUs were relatively stable sequentially. World of Warcraft subscribers increased following the release date announcement and beta for World of Warcraft Classic and the Rise of Azshara content update.

King’s (43.4% of segment revenues) revenues of $499 million declined 0.6% year over year. MAUs were 258 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 in the U.S. mobile app stores in the reported quarter, per App Annie Intelligence, quoted by Activision.

Operating Details

Product development expenses declined 4.3% year over year to $244 million. Also, sales & marketing and general & administrative expenses decreased 15.5% and 21.3% year over year to $191 million and $170 million, respectively.

Total costs & expenses on a non-GAAP basis declined 11.2% year over year to $953 million in the reported quarter.

On a non-GAAP basis, operating income was $744 million, down 22% year over year.

Guidance

For third-quarter 2019, Activision Blizzard expects non-GAAP revenues of $1.11 billion and earnings of 20 cents per share. Net bookings are expected to be $1.10 billion.

The Zacks Consensus Estimate for revenues and earnings are pegged at $1.38 billion and 42 cents, respectively.

For 2019, Activision Blizzard anticipates non-GAAP revenues of $6.19 billion and earnings $2.02 per share. Net bookings are expected to be $6.30 billion.

The consensus mark for revenues and earnings is pegged at $6.45 billion and $2.19.

Zacks Rank & Stocks to Consider

Activision Blizzard currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader consumer discretionary sector are Glu Mobile (NASDAQ:GLUU) , Comcast (NASDAQ:CMCSA) and Shaw Communications (NYSE:SJR) , each carrying a Zacks #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Glu Mobile, Comcast and Shaw Communications is pegged at 15%, 11.9% and 5%, respectively.

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