Investors had low expectations heading into the second-quarter earnings report from Activision Blizzard (ATVI +0.00%). The video game developer has been posting strong growth since the start of the pandemic, but Wall Street is worried about an impending slowdown as people seek out competing entertainment experiences with the COVID-19 threat retreating in many markets. And employee dissatisfaction has management issuing new initiatives aimed at keeping the studios running safely.
Activision eased those slowdown worries in its Aug. 3 earnings announcement while promising quick action on employee workplace culture and safety.
Let's take a closer look.
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Sales growth
Net bookings, the software giant's core growth metric, dipped 8% due to a tough year-over-year comparison when the start of the pandemic drove historic demand. But Activision still generated nearly 60% growth over the same quarter in 2019.
The Call of Duty franchise didn't entertain as many users for as many hours as it did a year ago. Yet the mobile version of the game grew, and player engagement is still roughly four times as high as it was two years ago.
World of Warcraft and Candy Crush gained momentum thanks to a steady stream of new content. And the overall results were better than management had predicted three months ago. "We are pleased that the company continued to deliver strong results," CEO Bobby Kotick said in a press release. Key financial metrics sparkled too, with earnings beating targets. Operating income rose to $959 million, up from $749 million a year ago.
Making things right
Management addressed the workplace harassment concerns that have sparked an executive shake-up due to the poor handling of initial complaints. "We will terminate any manager or leader found to have impeded the integrity of our process for evaluating claims and imposing appropriate consequences," executives said.
A week earlier, Kotick admitted that management had been "tone deaf" to early complaints about the workplace culture. There are new leaders at the Blizzard studio today who are working to improve the division, but investors will have to wait and see whether more significant changes are needed to reassure employees and regulators.
Looking ahead
Meanwhile, the near-term outlook is brightening for the business. Activision lifted its 2021 forecast and now sees net bookings reaching $8.65 billion compared to the prior forecast of $8.60 billion. The increase for the bottom line was more pronounced with earnings per share guidance increasing from $3.42 to $3.54.
That growth outlook might shift more dramatically next quarter after management has a better reading on the reception of key title releases like Diablo 2: Resurrected and the franchise's first big push into mobile, Diablo Immortal.
Activision has proved with its Call of Duty franchise that it can seriously expand engagement with complementary free-to-play offerings, and Diablo: Immortal will extend that strategy. We'll find out soon whether this approach can create another big win for the business, this time for another beloved franchise.
