Activision Blizzard (ATVI) was the first of the big video game companies to report earnings results for the first quarter of 2022, and the results were terrible. The Call of Duty maker reported a year-over-year decline in revenue of 22%. Adjusted earnings per share fell 35% year over year, as the company's top video game franchise continued to bleed players.
"Financial performance declined year over year, primarily reflecting lower results for Call of Duty and product cycle timing at Blizzard, offsetting robust growth at King," Activision said, referring to two of its game studios. It's no surprise the buyout from Microsoft received overwhelming shareholder approval at Activision's recent special meeting.
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Since launching at the start of the pandemic in March 2020, Call of Duty: Warzone has been a popular title, ranking among the most-watched games on game streaming platforms. It competes with Electronic Arts' (EA 0.79%) Apex Legends. Investors took Activision's weak quarter as a bad sign for other video game stocks, as Take-Two Interactive and Electronic Arts shares fell sharply immediately following Activision's report on April 25.
But is it a mistake to assume that weak performance for Call of Duty automatically spells disaster for EA's upcoming earnings report on May 10?
Apex Legends vs. Call of Duty
Activision finished the first quarter (ended March 31), with 100 million monthly active users in the segment that oversees Call of Duty, but that represents a loss of 7 million players over the quarter that ended in December. The company blamed lower premium sales of Call of Duty: Vanguard compared to the previous installment in the series, in addition to lower interest in Call of Duty: Warzone. Vanguard was released in November 2020 and Warzone was released in March 2020.
However, viewership data on Amazon's Twitch, a leading video game streaming platform, suggest Activision's weak quarter was an isolated case.
After Warzone launched two years ago, the game averaged about 100,000 viewers a day on Twitch across all the streams featuring the game, according to data from TwitchTracker. In recent weeks, Warzone has averaged about 47,000 daily viewers, or half of its total from 2020.
Meanwhile, EA's Apex Legends has steadily grown in popularity. When it originally launched in early 2019, the esports shooter averaged about 25,000 viewers per day. It steadily grew from there and now averages about 125,000 daily viewers on Twitch.
The data from TwitchTracker suggest Apex Legends is taking players away from Call of Duty and is the reason for Activision's weak performance.
For the fourth quarter, EA said monthly active users for Apex Legends increased 30% year over year. In the same quarter, Activision reported a loss of 12 million monthly active users (about 10%) in the Activision segment (Call of Duty).
EA sees even better days ahead for Apex Legends, including expanding the title to mobile.
"We are expanding to reach more players and viewers with new original content on the way," Electronic Arts CEO Andrew Wilson said on the fiscal 2022 third-quarter (ended Dec. 31, 2021) earnings call. "Our growing Apex Legends esports ecosystem and Apex Legends Mobile will soon be moving into soft launch as we continue our worldwide rollout."
Average player spending on in-game content has continued to grow along with the player base, and EA expects to report full-year bookings for Apex Legends of nearly $1 billion for fiscal 2022 (which ended March 31). Analysts expect total bookings, or adjusted revenue, to grow 20.8% year over year for EA's fiscal year, reaching $7.48 billion. Most of that growth, however, is boosted from EA's recent acquisitions.
Nonetheless, Apex Legends has been a key driver of growth for EA over the last year. Investors shouldn't assume Activision's weak quarter says anything about the health of other games. Even Take-Two reported strong results across its top games in the quarter ended in December, including Grand Theft Auto and Red Dead Redemption.
Electronic Arts should report a relatively better quarter than Activision. Of course, Apex makes up less than 15% of EA's business, so it will be important to see how other games like The Sims and EA Sports titles (Madden and FIFA) perform. EA reports fiscal fourth-quarter earnings (for the three months ending March 31) on May 10 after the market close.
