Activision Blizzard (NASDAQ:ATVI) stock is up a market smashing 70% year to date, as investors have been ecstatic with the company's recent business performance. Activision posted a great first quarter with growth in revenue and earnings despite no new game releases (excepting King's Bubble Witch 3 Saga). However, monthly active users (MAUs) -- a key measure of the game maker's user base -- has declined four quarters in a row. Is this a problem? Could it signal the company's momentum is about to end?

Let's take a closer look at this important metric to find out.

How monthly active users is calculated

Every quarter, management reports monthly active users as a key indicator of its audience reach with its games. However, MAUs is not a perfect indicator, and shouldn't be looked at by investors as a measure of how many unique players are playing the companies' games in a given period.

Hands holdings a smartphone with Candy Crush game displayed on screen.

Activision's King segment has been bleeding monthly active users. IMAGE SOURCE: PIXABAY.

For Activision Publishing, the creator of the best-selling Call Duty franchise, and King, the maker of mobile game Candy Crush, a single user who plays a game on two devices in a month is counted as two users. Of course, we don't know the actual percentage of players that are playing games on two or more devices, but, still, that uncertainty makes the metric less reliable as the end-all-be-all measure of the companies' audience reach. For example, if someone plays Candy Crush on their iPhone and then plays the game on a family member's iPad, that one player is counted as two users.

This isn't a problem for Blizzard, creator of the the massively popular Overwatch and World of Warcraft, because each player creates a unique "Battletag" (or user ID) when they sign up for an account on -- the online platform where Blizzard exclusively distributes its games for PC and Mac users. All game data is saved to each player's Battletag ID, in which players have to log in to access. The same goes for console players, as well.

A second reason why MAUs isn't a perfect measurement -- although this is less minor of a problem -- is that a single player who plays two of the companies' games in a given month, even on the same device, is counted as two users. Again, this can be misleading if you're thinking MAUs is the actual number of unique players the company is reaching.

Now that we know what this metric is and how it's calculated, let's review the recent trend and what it really means.

Downward trend in monthly active users

Total MAUs across all segments -- Activision, Blizzard, and King -- peaked at 544 million in the first quarter of 2016, and has declined every quarter since, down to 431 million at the end of the first quarter of 2017. Activision and Blizzard, combined, have increased MAUs from 81 million in Q1 2016 to 89 million as of Q1 2017, mainly driven by the growth of Overwatch since its release last year.

The culprit is King, where MAUs have declined from 463 million in Q1 2016 to 342 million in Q1 2017. The company attributes King's MAU decline to less engaged users leaving the network.

If those players are less engaged, King is not going to miss them. Activision Blizzard, across all of its games, wants to encourage player engagement in order to generate revenue from in-game spending. Less engaged players are not going to invest money in a game as much as a highly engaged one who is returning to a game month-in, month-out. The best way to think of MAUs, then, is as a measurement of traffic month-to-month across games. The end goal is to convert a certain percentage of that traffic to spend money on additional in-game content.

Remember this...

The relative number of monthly active users is meaningless unless its reviewed in context with other financial metrics, most importantly digital revenue, which includes in-game spending. While MAUs have been in a downward spiral, digital revenue increased 94% in 2016, and another 50% year over year in Q1 2017. Clearly, those users who stopped playing the companies' games were not as engaged as the players who remained, and, therefore, shareholders shouldn't be concerned at all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.