After more than five years of impressive gains, game publisher Activision Blizzard (NASDAQ:ATVI) took it on the chin last year, losing more than a quarter of its value. While the late-year correction was partially to blame, the biggest factor impacting the stock was fear that free-to-play champion Fortnite: Battle Royale was siphoning off players from Activision's games, thereby reducing revenue and player engagement.

Activision will have the opportunity to make its case once again when the company reports its fourth-quarter financial results after the market close on Tuesday, Feb. 12. Let's recap the third-quarter results and look at a few recent developments to see if they provide any insight into what investors can expect when the company reports earnings.

Check out the latest Activision earnings call transcript.

A gamer in a darkened auditorium raising his hands in the air in victory.

Image source: Getty Images.

Three quarters of slowing engagement

For the third quarter, Activision reported revenue of $1.5 billion, down 7% year over year, and net bookings of $1.66 billion, which fell 13%, topping management's forecast and in line with analysts' consensus estimates. Adjusted earnings per share came in at $0.52, also exceeding expectations.

Digital sales declined 4% year over year, to $1.28 billion, while digital net bookings fell 2% to $1.44 billion. Net bookings include the net amount of products and services sold digitally or sold physically in stores during the period, and includes licensing fees, merchandise, in-game advertising, strategy guides, and publisher incentives.

While Activision management boasted about the "deep engagement" of its users, a troubling trend has been developing recently. The number of monthly active users (MAUs) has shown steady declines in each of the past three quarters, which could be a sign that Fortnite is indeed siphoning off Activision's users. MAUs topped out at 385 million in Q4 '17, declining to 345 million last quarter.

Recent events

Activision executives have been playing musical chairs over the past month following two high-profile C-suite departures. 

Early last month, Activision announced it was terminating finance chief Spencer Neumann, presumably after learning he had been in discussions with Netflix to take a similar role at the streaming giant. Shortly thereafter, the company also lost the services of Blizzard Entertainment segment chief financial officer (CFO) Amrita Ahuja, who accepted the CFO role at Square.

In the wake of these moves, Activision appointed "three longtime company veterans" to lead its three operating units. Rob Kostich, who led the company's iconic Call of Duty franchise, was promoted to president of Activision. Humam Sakhnini, who acted as CFO and chief strategy officer for King Digital, was tapped to head that unit. Dennis Durkin, who has served as chief corporate officer and CFO of the company, will now lead Activision's Emerging Businesses unit. 

Expectations for the quarter

For the fourth quarter, Activision forecast revenue of $2.24 billion and net bookings of $3.05 billion, up 15% year over year, The company is expecting adjusted earnings per share of $1.27.

While we don't want to be lured into Wall Street's short-term mindset, analysts' consensus estimates are calling for bookings of $3.04 billion, up 15% year over year, and earnings per share of $1.29, up 37% compared to the prior-year quarter.

Shareholders will likely be happy if there aren't any more high-profile exits among Activision executives. The bottom line, however, will be for Activision to demonstrate that the slowing user engagement is turning around, a sign that the impact of Fortnite is waning. If it's more than just a fad, however, there could be more pain ahead for Activision shareholders.