With Activision Blizzard's (ATVI +0.00%) stock up 70% since the beginning of the year, a lot was riding on the game maker's second-quarter performance. This year is a light one for new game releases, so investors were not expecting huge year-over-year increases in revenue and earnings. All that was needed was a sign of strong player engagement levels with existing games and positive comments from management about future growth opportunities -- especially updates on its esports bet, Overwatch League. And investors got exactly that.
Here are three important highlights from Activision Blizzard's latest conference call.
Destiny 2 is one of two highly anticipated releases expected in fall 2017. Image source: Activision Blizzard.
Strong player engagement
Activision Blizzard had its best first half of the year despite no new game releases, which is a significant milestone for the company. Revenue for the first half of the year was a record $3.3 billion, up from $3 billion for the same period in 2016. A steady flow of new in-game content across major franchises kept player engagement high despite a tough comparison with last year's release of Overwatch. Here's what CEO Bobby Kotick had to say about it:
We released new updates across many of our leading franchises this quarter, driving engagement and delivering nearly $0.5 billion of segment operating income, the most we've achieved in a single quarter without new full game releases for any franchise.
Monthly active users (MAUs) for Overwatch and Hearthstone hit new highs, although management doesn't spell out specifics for each franchise. MAUs are not a perfect measure, but they do give us a sense of relative player traffic quarter to quarter for the company's games. Activision MAUs held relatively steady at 47 million, helped by the new Zombies Chronicle update released for Call of Duty: Black Ops III. Blizzard MAUs increased 38% year over year to 46 million.
Momentum building behind Overwatch League
Overwatch League is the game maker's big esports bet, and management sees it as a "substantial long-term value driver" for the company. Esports is the world of video gaming taken to professional, spectator-sport levels. Here's President and COO Collister Johnson's comment on its current progress:
We made strong progress this quarter on the Overwatch League ... That progress was a meaningful milestone toward establishing a league-based professional competition as a stand-alone business. We now have the sustainable structure in which to invest for the long term, with the very best partners from traditional sports and from esports.
Indeed, Activision successfully completed the first team sales in July, including one sale to New England Patriots owner Robert Kraft. Overwatch League team sales will provide a modest addition to revenue for the year, but this is mostly offset by investments the company is making to get it off the ground.
Expect to see more team sales in the near future, which will provide additional revenue. The Wall Street Journal -- citing people familiar with the matter -- reported in July that Overwatch League teams have sold for $20 million each, although no amount has been announced by Activision Blizzard.
Upcoming game releases are looking strong
Finally, while this is a light year for new game releases, the few titles that are being released are looking to be home runs. Destiny 2 and Call of Duty: World War II were both showcased at E3 in June to great enthusiasm from players and critics.
The first will be Destiny 2, releasing on console in September, with the first-ever PC version debuting in October. All signs are pointing to a very successful launch. Management reported that a high percentage of pre-orders are for higher-priced deluxe editions, which reflects enthusiasm for the game. Here's what Eric Hirshberg, CEO of Activision Publishing, had to say:
I think it's also worth noting that Destiny won 45 awards at E3, and we're continuing to close strong. We also have very strong preorders ... [and] the No. 1 position on Nielsen's unaided awareness and next-choice purchase intent. And while no one of those data points is ever predictive in a vacuum, we found that when you have all 3 of those trending positively, it's usually a very good thing.
Call of Duty: World War II will release in November, as the new version does every year. There are big expectations for the new World War II version after last year's science-fiction version disappointed longtime fans of the series. So far, the next installment is looking like a winner with the gaming community, according to Johnson's comments during the conference call:
We see great momentum for WWII, not only from key indicators like preorders, stated purchase intent and hands-on player feedback, but also from more qualitative measures like video views, social sentiment and engagement, which are up year over year.
What to expect for the rest of the year
The second quarter showed a strong enough performance to allow management to raise its full-year guidance. Management now expects full-year revenue to be $6.4 billion and non-GAAP earnings per share to be $1.94. This is down from 2016's $6.6 billion in net revenue and $2.18 in non-GAAP earnings per share due to fewer new games, but with healthy player engagement levels, and new growth initiatives across esports, in-game advertising, and consumer products, Activision Blizzard is setting the stage for long-term growth.
