The good news for Activision Blizzard is that in its first quarter—which ended not so long ago—it beat the Wall Street estimates, a revelation that drove the company’s stock price up in after-hours trading. Looking back at the numbers that went into the first quarter proved to offer some surprises, and given what we know so far, the future for Activision Blizzard may not be so bright.
Since Activision Blizzard is the largest game publisher in the United States, its performance is regarded as something of a canary in the coal mine that is the game industry worldwide. With said industry valued at just under $100 billion, according to a Newzoo report, the canary catching a cold could mean the rest of the market is about to get Captain Trips.
While several individual components added up to a win for Activision Blizzard, one of the biggest had to be the sales figures from Call of Duty: Black Ops III. With reports marking it as the best-selling game of 2015, bringing in a whopping $550 million during its first three days of sales alone, this one would light a fire under even a moribund sales operation. Light a fire it did, as the company reported non-generally accepted accounting principles (GAAP) earnings of $0.23 per share, with revenues of $908 million. Wall Street expected just over half that at $0.12 per share on revenues of $812 million. Thus, it not only beat the per-share, it also beat the revenue, and that proved quite a surprise. It actually fell closer in line with projections offered by Michael Pachter with Wedbush Securities, itself something of a surprise as Pachter’s predictive accuracy hasn’t always been the greatest.
That wasn’t the only high point for Activision Blizzard, of course; The company moved up 19 spots on Fortune’s “100 Best Companies to Work For” lists, which helps drive future employment and ensures the best in talent is on board. The company is looking at several new prospects like E-sports, as seen in its purchase of Major League Gaming, and it’s also driving a push for mobile games as evidenced by its recent purchase of King, the makers of Candy Crush and other games. More standard non-Call of Duty games are doing well as well; Destiny is holding around 30 million registered players, and Hearthstone: Heroes of Warcraft has nearly double that at 50 million. It’s also got some exciting developments afoot, as soon we’ll see the release of Overwatch, which is expected to be a major hit for the company, as well as some future developments with the King properties.
However, there are some potential hurdles that may keep Activision Blizzard from reaching its fullest potential. One major problem for the company is lagging sales on Skylanders, a development that seems increasingly common in the wake of Disney plans to shut down its own Disney Infinity operations. The other is the upcoming release of Call of Duty: Infinite Warfare. With a trailer that’s nothing short of hated and some very real potential for consumer revolt afoot, there are some clear problems ahead for the company.
If Call of Duty: Infinite Warfare can’t perform similarly to Call of Duty: Black Ops III, that could pose concerns about the company’s likely performance in the closing of the year, and how it can recover going into the first parts of 2017. The game is set to launch November 4, meaning that this is likely to be the big push toward the holiday shopping season. With at least a couple black marks against it already and a public less than enthused about what will likely be its big-ticket item, that could do some serious damage to its revenue. This is a point underscored by reports that World of Warcraft would likely see at least a “slight decline” in subscribers coming up, which isn’t exactly a first for the franchise.
A potential misfire in the always-important holiday shopping season coupled on with a decline in one of the biggest franchises the company has could represent some real problems in the later months. However, the company will have a position of strength to work from, especially if Overwatch does as good as some expect. Tack on some new downloadable content for Call of Duty: Black Ops III—not to mention a market-beating first quarter—and one bad quarter could be easily weathered.
The early going has gone quite well for Activision Blizzard, and based on what’s known so far the second quarter will likely do as well. The third quarter is a bit of a question mark, and the fourth quarter could have some significant problems afoot. While only the arrival of fiscal year 2017 will tell how 2016 went, Activision has a lot going for it, and should be able to effectively fend off any troubles in the end of 2016.