Activision Blizzard Q3 Takeaways: 'Call Of Duty,' E-Sports And More

On Thursday, Activision Blizzard, Inc. ATVI reported earnings which highlighted the performance of the new “Call of Duty,” as well as advancements in mobile and e-sports.

The Analysts

• UBS analyst Eric J. Sheridan reiterated a Buy rating and lowered the price target from $88 to $70.
• Morgan Stanley analyst Brian Nowak reiterated an Overweight rating and lowered the price target from $80 to $72.
• Bank of America analyst Justin Post reiterated a Neutral rating and lowered the price target from $77 to $68.

Q3

Activision reported adjusted earnings of 52 cents per share. The company sees Q4 EPS of $1.27 compared to $1.34 estimates.

“The company's choice not to pass through the beat to the full year guide despite strong performance from Call of Duty speaks to the challenges around core franchises such as Destiny, Overwatch, and Hearthstone that the company will have to contend with in 4Q and into 2019,” Nowak said.

Compared to the past few years, Activision currently has fewer outperformance indicators, Nowak said.

“The fact that the core franchises are facing both engagement and monetization headwinds speaks to recent misexecution, particularly at Blizzard, and highlights the work that the company must now do to return those franchises to growth.”

Opportunity

Activision remains well positioned in specific sectors, such as mobile gaming and e-sports, Post said. Additional growth drivers include a new IP and margin improvement from digital revenues.

“Given opportunities for new franchises and the shift to revenues that are more recurring in nature, and potential for new revenue segments from areas like eSports, we believe ATVI should trade at upper end of its historical range," Post said in the note.

Despite several growth opportunities, Post expects competition to create near-term headwinds.

Q4

Following the third-quarter earnings call, investors were left seeking clarity surrounding units and potential revenue from “Call of Duty,” in addition to answers about the status of King, “Overwatch” and “Destiny,” Sheridan said.

“Looking ahead to the Q4 earnings report, we see how ATVI mgmt frames 2019 (sources of growth YoY & potential margin contribution) as being the next key investor debate to ascertain any degree of medium-term compounded earnings growth.”

Price Action

Activision shares were down 13.8 percent to $54.07 Friday morning.

Related Links:

Oppenheimer Says Latest 'Call Of Duty' Game Positions Activision Blizzard For E-Sports Push

Activision Blizzard's Strong eSports Performance Pushes Morgan Stanley To $100 Bull Case

"Call of Duty: Black Ops 4" screenshot courtesy of Activision Blizzard.