2019 is a transition year for Activision Blizzard (ATVI), and its second-quarter financial results show the pain of that transition. There weren't any tentpole game launches to drive a big quarter, and game development costs are growing as the company invests in games that can be operated cross-platform around the world. 

But it wasn't all bad news in the quarter reported this week, and 2019 is actually shaping up to be better than expected. Here's a look at the highlights from Activision Blizzard's latest earnings report. 

Person wearing a headset and playing a video game.

Image source: Getty Images.

Activision Blizzard results: The raw numbers

Metric Q2 2019 Q2 2018 Change
Net revenue $1.40 billion $1.64 billion  (14.9%) 
Net income $328 million  $402 million  (18.4%) 
Diluted EPS $0.43  $0.52  (17.3%) 

Data source: Activision Blizzard. 

What happened with Activision Blizzard this quarter? 

There's a lot to unpack in the quarter, particularly in each segment. Here's what you need to know. 

  • Guidance was for just $1.32 billion in revenue and earnings of $0.21 per share, so results easily topped those estimates. 
  • Activision revenue was $268 million and operating income was $55 million, down from the year-ago quarter, which included the launch of Destiny. Blizzard revenue was $384 million with $75 million in operating income as in-game spending fell. King revenue was flat at $499 million and operating income was $171 million. 
  • Monthly active users (MAUs) for Activision were down from 41 million in Q1 to 37 million in Q2, Blizzard's MAUs were flat at 32 million, and King had a drop from 272 million MAUs to 258 million. 
  • A major priority of 2019 is expanding development teams in flagship games and that investment is increasing costs without bearing much fruit outside of some in-game updates in the second quarter. 
  • Call of Duty: Modern Warfare is scheduled to launch on Oct. 25 and is a franchise Activision Blizzard is investing in heavily. A mobile version is in soft launch in Canada and Australia, and a new esports league called Call of Duty Global League is in the works. The hope is to broaden the appeal and number of ways users can play the game. 

What management had to say

2019 has really been about investing in future growth and esports is one of the investments that can drive game sales, engagement, and direct revenue. As Call of Duty Global League is rolled out, management is happy about the progress in esports, with CEO Bobby Kotick saying: 

We remain the industry leader in esports and we will broaden the audience of Call of Duty even further through the launch of Call of Duty Global League. We've now sold eight teams, all at a premium to the initial Overwatch League team sales and with superb owners. And the 2019 season of the Overwatch League continues to break viewership records. In the second quarter, the season's stage 2 finals live on ABC was the best-performing esports broadcast to date across ESPN and ABC and both stage 2 and stage 3 recorded double-digit growth in hours watched year over year. 

So far, esports aren't having a big impact on the bottom line, but as the business grows and more leagues are launched, it could be a big driver of both game sales and direct revenue. 

Looking forward

The revenue and net income numbers above may not look impressive, but they're actually ahead of plan for 2019. That led management to raise full-year guidance. Revenue guidance was increased from $6.03 billion to $6.19 billion and earnings as reported under generally accepted accounting principles (GAAP) are now expected to be $1.41 per share rather than the $1.18 previously expected. 

Activision Blizzard seems to be setting itself up for success, and if current investments in game development pay off, the company should return to strong growth in 2020 and beyond.