Morningstar | Activision Starts Transitional 2019 With a Positive 1Q; No Major Catalysts in the Pipeline
Activision Blizzard started its transitional 2019 on a positive note as top- and bottom-line first-quarter non-GAAP results came in just ahead of the previous guidance and Street projections. The firm maintained its very conservative guidance for 2019. On the call, management focused heavily on the esports efforts including the third season of Overwatch next year and the Call of Duty World League which is moving toward an Overwatch-like league structure. While esports are important in terms of increasing and maintaining franchise awareness, neither effort will generate very high levels of income over the next few years. We are maintaining our narrow economic moat rating and our fair value estimate of $62. With shares trading in 4-star territory, the price may offer an attractive entry point to investors with the patience to wait out the 2019 transitional year.Non-GAAP revenue for the quarter fell 9% year over year to $1.3 billion (versus guidance of $1.0 billion). Activision non-GAAP revenue improved by 2% year over year to $312 million due to the launch of Sekiro and CoD in-game sales. Blizzard non-GAAP revenue fell 28% to $344 million as the division has no new titles and World of Warcraft is undergoing its typical post-expansion subscriber decline. Non-GAAP revenue at King was flat year over year at $529 million. Non-GAAP operating margin for the quarter declined to 24.1% from 28.5% last year as the fall in revenue more than offset lower game-related expenses.
While management stressed the overall strength of the game pipeline, the actual release slate over the next year looks quite bare. On the console side, there will only two more releases in 2019--CoD: Modern Warfare 4 and Crash Team Racing. Blizzard will not have any major releases in 2019. On the mobile side, CoD Mobile will be the major release with Diablo Immortal a possible release before the end of the year. Given the current pipeline, we don’t see any major catalysts in 2019.
Activision Blizzard is a global developer and publisher of interactive entertainment content and services. The company's segments are: Activision Publishing, Inc., which is a global developer and publisher of interactive software products and entertainment content, particularly for the console platform; Blizzard Entertainment, Inc., which is a global developer and publisher of interactive software products and entertainment content, particularly for the personal computers platform; and King Digital Entertainment, which is a global developer and publisher of interactive entertainment content and services, particularly for the mobile platform, including for Google Inc.'s Android and Apple Inc.'s iOS.
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