Earnings: 2Q profits of $0.06 vs. $0.053 consensus and $0.08 in 2Q09.
Revenue: Down 15% YoY to $683 million vs. prior guidance of $700 million.
“Besides a light release schedule, we believe the drop reflects weak consumer spending and a shift away from console games. Although ATVI sold 1.5 million copies of StarCraft II in the first two days of its release, we do not think sales met expectations,” noted one analyst who maintained a Hold rating on shares.
Comment: Activision Blizzard Inc. (NASDAQ: ATVI) was unable to live up to the bar set by competitor Electronic Arts (NASDAQ: ERTS) earlier in the week. ERTS, which reported on Tuesday, shot up approx. 8% following its quarterly release, increasing optimism that ATVI would report an equally compelling Q when it stepped up to the plate Thursday after the close.
ATVI managed a slight beat on EPS, but lights revs and even lighter guidance put pressure on shares almost immediately. The company reiterated its FY10 views, but gave a weak 3Q10 forecast of $0.08/share on revenue of $725 million. This was a far cry from expectations, as consensus estimates had ATVI’s 3Q pegged at $0.12/share on $912 million. 2Q Operating margins jumped to 31% from 21% as costs dropped 19%, but that was largely offset by income tax expenses that nearly quadrupled.
For 2Q, COO Tom Tippl noted that results were helped by strong sales of titles such as “World of Warcraft” and the “Call of Duty” franchise. He added that, as a sign of the growing strength of Activision’s online digital business, Activision passed the 20 million-sales mark in downloadable map packs for the “Call of Duty” franchise. “This [was] the first quarter our sales from online channels outweighed our retail sales,” Chief Executive Bobby Kotick said on the conference call.
While it is certainly a plus to hear that ATVI’s downloads are thriving, that alone will not hold up shares while the industry at-large continues to suffer. An NPD Group study found that total software sales dropped 12% last Q, and depending on your views of the domestic economy, those numbers may only be getting worse.
If you’re a believer in the ATVI franchise, shares’ post-earnings dip may be a good entry point, but until we see some solid numbers out of ATVI you may be better off looking elsewhere.
Disclosure: No holdings in ATVI.