The third quarter was once again better than expected for Activision Blizzard (NASDAQ:ATVI), which always seems to set expectations it can easily clear. Revenue of $1.28 billion beat the guidance of $1.11 billion but was also down sharply from $1.51 billion a year ago. 

Revenue can go up and down depending on game launch dates, but what investors should be keeping an eye on is engagement. We may be seeing a long-term deterioration in Activision Blizzard's critical engagement figures, and that will hurt its current perceived status as a growth stock

A person playing video games in a dark, red lit room

Image source: Getty Images.

Activision Blizzard's declining engagement

Each quarter, Activision Blizzard reports monthly active users, a metric it uses to show engagement. For a long time, engagement was rising as games like Call of Duty, Destiny, and World of Warcraft grew. But for the last couple of years, the engagement trend has been heading lower as games like Fortnite take gamer interest. 

Division Q3 2017  Q3 2018  Q2 2019  Q3 2019
Activision 49 million 46 million 37 million 36 million
Blizzard 42 million 37 million 32 million 33 million
King 293 million 262 million 258 million 247 million

Data source: Activision Blizzard earnings reports. 

You can see above that the decline in engagement isn't a new phenomenon. It's been taking place for two full years, and it affects all of Activision Blizzard's divisions. 

Below is a chart showing that falling engagement hasn't yet led to a big decline in revenue and earnings, but the trend may be starting to sink lower in 2019. If engagement doesn't pick up, I would expect revenue to continue moving lower long term. 

ATVI Revenue (TTM) Chart

ATVI Revenue (TTM) data by YCharts.

The question now is: Can Activision Blizzard get engagement back up? 

Kickstarting video game interest

Activision Blizzard is going back to its old hits to try to attract more players. It recently launched Call of Duty Mobile, and while gameplay is fun and reminiscent of the classic Call of Duty hits, I don't think it's a game-changer for a company like Activision Blizzard. 

Old hits like Candy Crush and World of Warcraft have also gotten upgrades, but it's hard to see that kick-starting interest in the company's games. Unless it has another Fortnite-type hit in the works, engagement may be in a structural trend lower. 

Esports haven't been the golden ticket

One theory was that esports would help with gamer interest, but that hasn't been demonstrated in the numbers. Overwatch and Call of Duty have successful and growing leagues, yet gameplay overall is declining for Activision Blizzard. 

The market has so far overlooked most of the recent decline in engagement, choosing to look at 2019 as a transition year before new games hit the market in 2020. But there's no guarantee those new games will perform any better, and the long-term trends may only be lower for one of the most successful video game companies in the world.