Last week, American video game publisher Activision Blizzard (ATVI) reported third-quarter adjusted earnings per share of $0.78 on revenue of $1.95 billion, above consensus projections of $0.65 on $1.7 billion, respectively. The quarter's revenue increased by 52.4% year over year, driven by content launches and high levels of audience reach and engagement. There was strength from the company's marquee franchise Call of Duty. Activision also raised its full-year 2020 outlook to $3.08 EPS on revenue of $7.68 billion, up from $2.87 EPS on $7.3 billion.
Those were the basics of the gamemaker's report, but there was much more in the report worthy of attention from potential and current investors. Here are three takeaways from Activision Blizzard's third-quarter earnings release.
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1. Activision Blizzard is well-positioned with top-performing franchises
Activision Blizzard's popular franchises continue to be big revenue drivers. Revenue in the company's Activision segment was up 270% year over year, driven by strong performances from Call of Duty: Modern Warfare, Call of Duty: Warzone, and Tony Hawk's Pro Skater.
"Today, we're in a position to deliver sustained and significant long-term expansion across our portfolio of fully owned franchises," CEO Bobby Kotick said on the third-quarter earnings call. "As we execute against our content pipeline, extend our key franchises to mobile, introduce new free-to-play experiences and continue to optimize in-game operations, we are positioned to continue converting our growing agent into consistent and long-term revenue and earnings growth."
Call of Duty had the largest impact on third-quarter performance, with growth across mobile, PC, and console segments. The video game company sees the franchise as "a social ecosystem that engages and connects our players to an unprecedented degree."
During the third quarter, Call of Duty: Modern Warfare and Warzone had three times more monthly average users (MAUs) year over year. Monthly average users are the number of people who accessed a particular game averaged across the number of months in a set period. For PC and console, the hours spent playing Call of Duty were seven times higher year over year.
Chief Operating Officer Daniel Alegre commented on the Tony Hawk launch: "In the third quarter, Activision continued to reimagine the loved IP with the successful launch of Tony Hawk's Pro Skater 1 and 2. The game received fantastic reviews and became the fastest title in the series to reach 1 million units sold, highlighting the opportunity for our rich library of classic franchises."
The game was the fourth-best selling game of September 2020, according to research group NPD.
2. Strength in the video game industry is still providing tailwinds
Activision Blizzard's growth strategy is three-pronged: increase player investment, deepening engagement, and expand audience reach.
Alegre said the company's player base grew 23% year over year in the third quarter, and the total time spent in the various games increased even more. While the company's execution has been working to drive growth, it's also benefiting as consumers shift more time to video games as other types of entertainment are limited in parts of the world and the U.S. due to COVID-19.
The overall industry continues to expand, with September's total video game revenue up 10% year over year. Year-to-date user spending through September was up 21% year over year to $33.7 billion, according to research firm NPD. That video game spending strength is expected to continue through the 2020 holiday season among U.S. consumers. NPD projects a 24% increase to $13.4 billion for November and December, with strength across the industry, including mobile, digital full-game, console hardware, and content on console and PC.
3. The company is expanding its reach with more platforms, including mobile
Activision Blizzard sees growth in additional global markets like Mexico and Brazil through mobile, with an opportunity to connect the mobile experience with engagement on PCs and consoles. The market in China is expected to expand and be a big contributor to future revenue growth. Currently, Call of Duty Mobile is in large-scale testing in China, with 50 million new players pre-registered as of Oct. 29.
Kotick was very confident on the company's positioning over the long-term on the earnings call: "...this is my now 31st year of doing this, I don't recall a time where I've seen more opportunity for growth and margin expansion in all the time that I've been doing this. The challenge for us is going to be, one, prioritizing opportunity; and then two, making sure that we have the right talent aligned with those opportunities."
Kotick said he expects there to be more platforms to work with and more opportunities to deliver interactive entertainment experiences. He also projects increasing engagement from Activision's games in social arenas, a shift toward more frequent delivery of fresh content, and the chance to benefit from the flexibility that player investment models are creating.
The takeaway
Overall, Activision is in a good place, with secular trends and favorable consumer behavior supporting its continued growth. As the consumer discretionary company continues to execute on its goals, it also continues to hold its dominant position in the video game market.
