Activision Blizzard (NASDAQ: ATVI) continued to benefit from people at home playing video games in the second quarter. Net bookings jumped 72% year-over-year to $ 2 billion. The strong results were driven by several franchises across the company, but the Activision segment was the standout, with net revenue nearly doubling over the year to $ 993 million in the quarter.
De Call of Duty franchise has helped the company reach a much wider audience across platforms and geography, and that has put Activision Blizzard on pace to reach a record level of total bookings and earnings per share this year. While management remains cautious with its long-term outlook, it sees the increase in demand as a basis for long-term growth.
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Call of Duty is the star of the show
The strategy to release different versions Call of Duty across platforms and price points has worked extremely well. Play it free Call of Duty: Warzone has attracted more than 75 million players. As millions of new players try it out Warzone, they have been upgraded to the premium version Call of Duty Modern Warfare, which drives higher revenue and commitment to the franchise.
The hours played in Modern warfare increased eighty years, driven by new and existing players. The Activision segment ended the quarter with 125 million monthly active users, up 22.5% in the first quarter. That is up from 37 million in the second quarter of 2019.
Management called this a “step change” in engagement. “In the first three quarters, total in-game net bookings are for Modern warfare now the three preceding Call of Duty titles combined over the same period, “Chief Operating Officer Daniel Alegre said during the conference call.
What comes next?
Of course, the pandemic will not be forever to keep people close to their homes playing video games. However, higher levels of player attendance are likely to take some time.
Sony reportedly reports its first shipment of PlayStation 5 consoles to 10 million units for the upcoming launch this holiday, as it expects higher demand.
During Activision’s call in the second quarter, CFO Dennis Durkin said: “We continue to experience strong momentum in the company, even when tailwinds of shelter are in a moderate spot.” Activision Blizzard faced a sluggish demand in King’s mobile games in the second half of the quarter. But the rest of the company is currently enjoying tremendous momentum.
Alegre elaborated on this during the call, stating: “While casual franchises are rapidly returning to more typical trends, our core franchises, with the greatest emphasis on social, multiplayer gameplay have continued to increase, even as regions reopen.”
Activision Blizzard allows the possibility that a severe recession could change its performance in the long run, but management sees this period of high demand creating a new plateau for future performance. One reason for this is that the monthly active users of Activision Blizzard in the company now total 428 million.
More specifically, the Activision and Blizzard segments have a combined 157 million users. That’s 88 million more users than last year, which gives the company a much larger audience to launch new games to grow revenue.
“In the second half, we plan to launch significant new content in major franchises with significantly larger audiences than we’ve seen before, and create the opportunity for strong financial results,” Durkin said. The two most important upcoming releases are the World of Warcraft: Shadowlands expansion, and the new premium release for Call of Duty.
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The basis for long-term growth
The updated outlook calls for total net bookings to reach a record $ 7.6 billion for the full year, while non-GAAP revenue should reach $ 2.87.
Beyond 2020, management seeks to apply the lessons Call of Duty to other franchises. CEO Bobby Kotick referred to the recent success of Call of Duty as a “road map we plan to follow for the many franchises we have in our library, dating back to 1980.”
Video game files are currently performing well for investors during the pandemic, but Kotick’s comment suggests that Activision Blizzard has much more up its sleeve to drive long-term returns.
