Activision Blizzard (ATVI +0.00%) entered the second quarter with a lot of work to do to get players reengaged with its top franchises. While there is still much to get done, the game maker showed good progress in its latest earnings release. New content is already trickling out to player communities across Hearthstone, World of Warcraft, and Overwatch, and the player response has been very positive so far.
For the quarter, Activision Blizzard reported non-GAAP revenue (or net bookings) of $1.21 billion, beating management's guidance of $1.15 billion. Adjusted earnings were well above expectations, coming in at $0.53 per share, compared to guidance of $0.35. However, the bottom-line beat was mainly due to investment timing, as the company didn't spend as much on operations during the quarter as it originally planned.
Let's take a closer look at what management had to say with respect to player engagement trends across top franchises, and what to expect for the rest of the year.
IMAGE SOURCE: GETTY IMAGES.
Player engagement up in key franchises
The earnings beat was partly due to the timing of costs, but CFO Dennis Durkin also emphasized that they are executing at a high level, both creatively and operationally, to improve the company's performance:
We are taking the right steps to deliver the world-class execution and quality content delivery that has characterized our company for many years. I remain confident that executing against our plan will position us to deliver strong results and shareholder value over the long term. -- Durkin
It's still early in this improved performance plan, and most of the investment happening right now is intended to drive long-term results, not just the next few quarters. But recent content is already making an impact on time spent in games.
Hearthstone saw monthly active users increase sequentially over the first quarter, following the Rise of Shadows expansion and additional new single-player content. COO Coddy Johnson said, "We see substantial opportunities ahead for the Hearthstone franchise."
World of Warcraft (WoW) is long past its peak, with only a small fraction still engaged out of the 100 million players who have played since the game's 2004 release. But Blizzard made a huge effort to bring some of those players back with the recent release of World of Warcraft Classic, which allows players to play the game in its original state, as it was 15 years ago.
Only time will tell if players remain engaged, but so far, so good, as Blizzard saw an increase in subscribers since the middle of May. Plus, Johnson hinted that WoW Classic is just the beginning of a new wave of content they are planning to release in the months ahead. During the call, he stated that "the World of Warcraft team is focused on delivering substantial incremental content in non-expansion years." This is a significant change of pace for Blizzard, which has relied on new expansions every few years to keep WoW players engaged in the past.
Moving on to another important Blizzard franchise, Overwatch has been flooded with new features in just the last three months. It's been the busiest three months for the game since it was released in 2016. In the second quarter, Blizzard launched the Workshop feature, which resulted in increased engagement for the game. However, monthly active users remained stable over the first quarter and down year over year, but an important new feature was released after the end of the quarter which could bring back players who have quit playing over the last year.
It will be interesting to see if Overwatch gets a bump in active users next quarter, because, in the last two months, Blizzard released two new features that are intended to enhance the competitive experience in the game, which the player community has been requesting for a long time.
Finally, monthly active users were down across the Activision segment, mainly attributed to the absence of Destiny, a title Activision no longer owns. More importantly, Call of Duty: Black Ops 4 saw an increase in users following new in-game content. Activision also said that total hours played in the game were up 50% year over year compared to the previous installment in the series.
A step in the right direction
Other company initiatives, such as esports and advertising, performed well last quarter, too. The second season of Overwatch League has seen double-digit growth in average minute audience, and Call of Duty World League saw growth of 50% year over year in average minute audience.
King's advertising business continues to gain momentum, with ad revenue doubling over the year-ago quarter. Activision Blizzard is on track to generate $100 million in ad revenue this year, so this is clearly developing into a very lucrative opportunity for the company.
While management cautioned that the competitive landscape in the industry remains dynamic, with new business models still taking shape and lots of new games vying for attention, they remain confident about their near-term trajectory. The company maintained its full-year outlook for net bookings of $6.3 billion while bumping up its guidance for non-GAAP EPS to $2.02 for the year.
Overall, it was encouraging to see progress being made in those franchises that have already received new content releases, in addition to continued momentum building in esports and advertising. There is more coming, with new games in the pipeline, mobile titles, and more content for existing games.
