Activision Blizzard (ATVI) has worked hard in recent years to expand its portfolio of video game franchises so that the business doesn't depend mainly on the results from just a handful of big titles. To that end, the developer now counts major franchises that span across several gaming niches in the free-to-play, subscription, and purchase-based sales models.

However, a key drawback to that strategy is that it can force the company into new arenas that might sit outside of its core strengths, leading to weaker growth results from time to time.

The company's third-quarter earnings report, while showing healthy overall results, included signs that Activision wasn't meeting management's targets in a few of its latest launches beyond its Call of Duty and World of Warcraft staples. Executives added context for investors on those misses in a conference call with analysts, and below we'll take a look a few highlights from that presentation.

Four friends playing console games.

Image source: Getty Images.

Improvements are needed

We have robust engagement and content roadmaps in place for our key franchises including Call of DutyWorld of Warcraft, and Candy Crush. Now, not all our franchises are experiencing the momentum we see in Call of Duty and Candy Crush and we have to improve the pace of innovation and the cadence of in-game content.

-- COO Coddy Johnson

Activision's audience size is a critical metric for the business because it forms the foundation for sales and earnings growth. Its performance here came up a bit short of expectations, as its total active gamer base fell for a third straight quarter despite some major game releases. Specifically, Activision counts 345 million engaged users, compared to 384 million a year ago and 352 million in the previous quarter.

Engaged player base.

Data source: Activision Blizzard. Chart by author. Player base in millions. 

Most of the quarter-to-quarter decline came from modest losses in casual gamers in the King Digital mobile segment, which is to be expected. Yet Activision said its latest Destiny chapter, along with a few other titles, failed to meet targets and so its player base barely budged in either the Activision or the Blizzard segment.  

Engagement is strong

Daily time spent per user playing our games reached a new record of 52 minutes. Viewership of our games is also up significantly, and just last month Activision Blizzard titles accounted for seven of the top 20 most viewed games on the industry's largest streaming platform.

-- Johnson

Overall, there's no sign that Activision is losing its touch with its core customers. Instead, daily engagement per user rose to 52 minutes from 50 to set another record. Those players spent freely, with in-game purchases crossing $1 billion for the third straight quarter. Many more people are being exposed to its content through game streaming services and e-sports leagues, too, which bodes well for the developer's plans to expand into areas like advertising, licensing, and consumer products.

Risks ahead

Our recent major launches for World of Warcraft, Call of Duty, and Candy were all very successful and will set the stage for continued opportunities in 2019. Some of our other franchises like Destiny are not performing as well as we'd like and we're working to accelerate the pace of innovation and improve the speed with which we release new content, keep our players engaged, and to provide new opportunities for monetization.

-- CFO Spencer Neumann

Activision affirmed its full-year 2018 guidance and had lots of positive things to say about the early demand metrics for Call of Duty: Black Ops 4, its biggest release of the year. However, executives sounded a cautious note overall that reflected the uneven performance of a few other titles.

That positioning will add to elevated seasonality and raise the stakes even higher for the fiscal fourth quarter. The company enters this key period with a solid base of engaged gamers and a deep portfolio of popular content, but there is still an usually high amount of execution risk around its content and marketing programs over the next few weeks. Some titles aren't living up to management's high expectations, either.

Beyond that challenging period, Activision notes that its long-term growth plan includes many attractive initiatives around areas like mobile gaming, e-sport leagues, and advertising sales that all promise to keep brightening its overall outlook.