Activision Blizzard meets expectations in Q3 2021, but stock tanks thanks to two big game delays

Activision Blizzard‘s net bookings of $1.88 billion in the third quarter ended September 30 matched expectations on Wall Street, with the net bookings rising 6% compared to $1.77 billion a year ago — a difficult comparison since the pandemic lifted gaming revenues dramatically a year ago.

Overall, the report for the quarter is a mix of good and so-so news at a time when the company’s only major release was the launch of the remaster Diablo II: Resurrected.

On a GAAP basis, revenues were $2.07 billion for the third quarter, up 6% compared with $1.954 billion a year earlier. Earnings per share were 82 cents, compared to 78 cents a share. That was well above the company’s own outlook of 64 cents.

Non-GAAP earnings per share were 89 cents, which, when taking into account deferrals of -17 cents a share, compared to analyst expectations of 70 cents a share and year-ago numbers of 88 cents a share. In after-hours trading, Activision Blizzard’s stock is down 8% to $70.90 a share.

In an analyst call, Kotick said that Jen Oneal, the co-head of Blizzard Entertainment, is leaving the company. Blizzard continues to be in the news with updates related to the sexual discrimination lawsuits against the company. The California Department of Fair Employment and Housing sued this summer, alleging Activision Blizzard had a “frat house culture” that made life difficult for female employees.

Most of the fallout in terms of major shakeups related to company investigations fell on Blizzard. Oneal and Mike Ybarra replaced J. Allen Brack as co-heads of Blizzard, and now Ybarra will lead the division alone. On top of that, the company said that Overwatch 2 and Diablo IV have been delayed.

“I’m pleased to report strong third-quarter results ahead of our prior outlook,” said Bobby Kotick, CEO of Activision Blizzard, in a statement. “We are excited about this week’s Call of Duty launch and expect continued success in the fourth quarter. I want to thank our employees for their continued commitment to each other, the company, and our players. We look forward to sharing progress updates on our workplace initiatives, alongside our business performance.”

In-game net bookings were $1.20 billion consistent with the third quarter of 2020. Overall, the company’s monthly active users were 390 million players for the third quarter.

Working environment

Above: Activision Blizzard’s old headquarters.

Image Credit: Activision Blizzard

The company reiterated its pledge to be the most welcoming, inclusive company in the game industry in response to lawsuits that have kept the company’s Blizzard Entertainment division in the news. The state lawsuit alleged that women were either harassed, made to feel uncomfortable, or mistreated when it came to career advancement.

Repeating a claim it made earlier, Activision Blizzard said more than 20 individuals have exited the company in recent months related to the ongoing investigations. The company plans to invest $250 million over the next 10 years in initiatives that foster expanded opportunities in gaming and tech for under-represented communities.

The company also plans to increase its percentage of women and non-binary people in its workforce by 50% in the next five years. The company has 10,000 employees, and it has thousands of openings for games going into production, Kotick said in an interview with GamesBeat.

That will be difficult to do with the state lawsuit hanging over its head, but the company did settle a separate lawsuit by the federal Equal Employment Opportunity Commission for $18 million. All of the litigation related to the matter continues to keep the company in the news, and that will likely make it hard for the company to hire all the right people it needs for all of the games coming into production.

User growth

Above: Call of Duty: Warzone is one of Activision Blizzard’s big games.

Image Credit: Activision Blizzard

On the user front, the company said overall users were 390 million, flat compared to the same number a year ago.

Activision’s users were 119 million in the third quarter, compared with 111 million a year ago and 127 million in the second quarter.

Blizzard’s users were down at 26 million compared to 27 million a year ago and flat compared to the second quarter. That is telling even though the remake of Diablo II: Resurrected launched in the quarter. Bigger efforts to help stabilize World of Warcraft and Overwatch numbers are underway, but those are coming in the future.

And King saw its users hit 245 million, down from 249 million a year ago and 255 million in the previous quarter. But King’s revenues were up 20% in the quarter compared to a year ago. Blizzard also grew its revenues 20% from a year ago, and Activision saw its segment revenue decline 17% in the quarter due to the launch of Tony Hawk’s Pro Skater 1+2 a year ago and no new game launch this quarter. Over the past nine months, Activision’s revenues are up.

Above: Candy Crush Saga

Image Credit: Getty Images

Call of Duty: Warzone saw a decline in users in part because the content is getting older and because the company saw a huge bump due to the pandemic a year ago. But the company has fresh Warzone content coming in the form of a new map on December 2, after the launch of Call of Duty: Vanguard (the latest premium game from the Sledgehammer Games studio) on November 5.

It did point out that net bookings for Call of Duty: Mobile grew 40% in the third quarter compared to a year ago. The Call of Duty ecosystem saw sustained reach, engagement, and player investment well above levels seen prior to the introduction of free-to-play experiences across console, PC, and mobile. Overall activity in Call of Duty is still three times the level it was in the third quarter of 2019, before the March 2020 introduction of the free-to-play Warzone and Call of Duty: Mobile.

The company said it had a strong launch for Diablo II: Resurrected, the remastered title. Diablo Immortal is still in testing for a release on mobile platforms in the first half of next year. World of Warcraft engagement continues to benefit from the combination of Modern and Classic modes under a single subscription. Hearthstone net bookings were stable in the quarter.

King grew thanks to strong hours played in the quarter compared to a year ago, with players responding positively to a more frequent cadence of compelling in-game content and events for key titles. Payer numbers grew by a double-digit percentage versus the year-ago quarter.

Above: The new Rome map is part of the look of the upcoming Overwatch 2.

Image Credit: Blizzard

In-game net bookings for Candy Crush grew over 20% year-over-year, with Candy Crush once again the top-grossing game franchise in the U.S. app stores.

At the end of the third quarter King launched the Candy Crush All-Stars U.S. tournament which has driven meaningful increases in installs, game rounds played, and in-app purchases in recent weeks.

King has also been accelerating and refining content delivery in Farm Heroes, its second-largest franchise. This work continued to bear fruit in the third quarter, and in-game net bookings have grown around 20% year-over-year on a year-to-date basis.

King’s advertising business grew robustly, with quarterly revenue growing sequentially and year-over-year to a new high. Both volume and pricing grew strongly year-over-year, benefiting from the team’s growing relationships with demand partners and the ongoing ramp of new categories of advertisers.

The company expects revenues of $2.91 billion in the fourth quarter, above its own earlier projection of $2.78 billion. Net income is expected to be $1.38 a share for the fourth quarter. For the full year, the company expects revenues of $8.784 billion, up 3% from a year earlier. Activision Blizzard expects consensus earnings per share of $3.70 a share.