November 4, 2021 8:00 AM
 — 
3
 min

Weak outlook disappointed investors

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Activision Blizzard posted good 3Q results, but the company gave a weak forecast. Revenue rose to $ 2.070 billion from $ 1.954 billion a year earlier, net orders increased to $ 1.88 billion from $ 1.77 billion. Net income in July-September was $ 639 million, or 82 cents per share, up from $ 604 million. or 78 cents per share, for the same period last year. At the same time, profit excluding one-time factors increased to 89 cents per share from 88 cents. The market expected the company's adjusted earnings of 70 cents per share, revenues - $ 1.88 billion, orders - $ 1.87 billion. The number of monthly active users at the end of September was 390 million, compared with 435 million in the third quarter a year earlier. At the same time, their number has not changed over the year.

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Activision Blizzard announced that the release of the Call of Duty: Vanguard game will take place on November 5, the new part of Warzone Pacific - on December 5. However, the release of games in the framework of other franchises is delayed, in particular, the company announced the postponement of the release date of two key games Overwatch 2 and Diablo IV, which disappointed investors. Certain concerns remain regarding the release of Diablo Immortal, which is scheduled for 1H22. Diablo Immortal was previously expected to be a hit in China, but regulatory restrictions in the gaming industry could put pressure on mobile game sales.

Activision Blizzard expects fourth-quarter adjusted earnings of 62 cents per share on revenues of $ 2.02 billion and order volume of about $ 2.78 billion, while the forecast for full-year 2021 profit has been improved to $ 3.7 from $ 3, 54 per share, for revenue - up to $ 8.66 billion from $ 8.515 billion. Valuation of orders remained at $ 8.65 billion. We are more optimistic for 4Q results and expect the company's adjusted earnings in October-December at $ 1.38 per share at revenues of $ 2.91 billion and orders of $ 2.89 billion. Our forecasts for the current year are respectively $ 3.83 per share, $ 8.79 billion and $ 8.76 billion.

We're not too surprised that Overwatch 2 and Diablo IV will release later than 2022, given the change in senior management due to a corporate scandal. However, we are surprised by the overreaction of the market to the news, as the company's shares are down 15% after the publication of the financials. We agree that the postponement of the release is negative for the company's business, so we reduce our estimate of earnings per share for 2022 from $ 4.53 to $ 3.77. We expect the company to generate good revenue from the release of the new version of Worldof Warcraft and Diablo Immortal, but we also see the need to increase R&D costs and forecast a moderate decline in console sales. We remain positive about Activision Blizzard's business, but slightly lower our target value for the company's stock from $ 100 to $ 94.

We expect the current Call of Duty, World of Warcraft and Candy Crush franchises to continue to generate significant revenue over the next few years. Among the obvious drivers of the company's capitalization growth are the long-awaited releases of Overwatch 2 and Diablo 4, which are scheduled after 2022. We believe there is room for long-term growth for the company in esports and mobile advertising, as well as mobile IP porting services. However, we believe that monetizing these options may take longer than the market anticipates.

Activision Blizzard, Inc. is the world’s largest and most profitable independent interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, World of Warcraft, Skylanders, and Diablo®. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world.

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