What happened to Activision Blizzard?
What happened to Activision Blizzard? |
Activision Blizzard…a big name in the video game industry. They’re huge and have been making and publishing video games since the dawn of video gaming history. They’re the makers of the Call of Duty franchise, World of Warcraft, Diablo games, Candy Crush on the mobile side, Overwatch just to mention some of the big ones. Of course, they made and published many other games too.
Not beside, Activision Blizzard is very active in the multi-million (billion) dollars e-sports business.
Before the Storm
The company’s stock (NASDAQ: ATVI) has been increasing since 2009 and they seemed to be on a right track. By the end of September, 2018 ATVI was on its all time high and traded around $80/share. Then things started to change in October and since then it turned into a crisis that must be solved to keep the success story going. Only 4 months were enough to make a huge destruction for ATVI that resulted a 50% drop in the share prices.Altough it’s still on the level where it was 2 years ago which is still somewhat acceptable but the reasons behind the fall are the ones that make this whole story worrying.
It can be a good lesson for any video game company for the future about “How not to do things in business”
ATVI released an early earning estimate that wasn’t fulfilling for most of the investors’ expectations, so the stock started to drop and lost about 17% by the end of October. It’s not good but not an unusual thing and definitely not a drop that can’t recover quickly.At this point, a good earnings report and a successful BlizzCon* in November could have skyrocketed the stock back to the clouds.
*BlizzCon is an annual gaming convention held by Blizzard Entertainment to promote its major franchises Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm and Overwatch. (source: https://en.wikipedia.org/wiki/BlizzCon)
ATVI reported lower earnings that investors expected. Altough they beat the earning estimates for the latest quarter so it could have started to slowly recover but (and this is the key) they made the Diablo fiasco on BlizzCon. Obviously the real problem started much earlier and more complex than Diablo but it was the point when it went public and gamers were furious. Not only Diablo fans but gamers overall as they basically stand behind the Diablo fans. They see an enormous amount of greed behind this decision.So ATVI got lots of hate because of this from the gamers community overall which had (still has) a strong echo.
Just briefly : Diablo is a PC game. Their fans are PC gamers and Activision Blizzard came up with the new Diablo as a mobile game. It would still be acceptable but it’s mobile game ONLY. (Probably because they think, they can make more money out of the mobile side.) And this was the point when something got broken big time. Fans felt disappointment, anger and being cheated. The avalanche started.
This month was a meltdown on the US stock markets and by Dec 24th most of the stocks dropped a lot. It was a combination of a year-end selloffs because of taxation reasons and also a correction.Video game stocks were hit even harder because they traded at high levels. ATVI was a bit of an exception because they already started to sink a month earlier.So, while it didn’t really go lower in December it had no chance to start recovering because of the bearish market.
Also, another issue can be Fortnite* that hurts sales of the Call of Duty games (Overwatch too) and it hurts more in the Christmas time. And the winner of this kind of games of the 2018 Christmas season was Fortnite.
*Fortnite is a game made by Epic Games which is also a developer of the very powerful Unreal Engine 4. It’s also backed up by the Chinese tech and video game giant Tencent, which owns 40% of Epic Games…and Fortnite is free to play. Obviously you can spend a fortune in game but it’s free to play.
So, the nigthmare is over, we just started a new year, the sun is shining, we didn’t gain too much weight in the last 2 weeks, so let’s rock. ATVI shares started to recover. By January 10th it gained back about 15% since Dec 24 and it seemed to be alright again.
Then on January 10th Activision reported to split up with one of their most promising franchise (Destiny) developer Bungie. Bang…another shot.The reason was financial. Destiny probably didn’t make enough money.
In the meantime Activision didn’t really communicate to the worrying shareholders which just put more oil onto the already raging fire.
The month of the next earnings report and the month when hopefully no new bad news will shake Activision Blizzard.
I guess by this point, shareholders, heads and also employees of Activison had a first phase peptic ulcer, shaking hand symptoms and taking sleeping pills like sugar candies.
Of course, bad news came. Law firms started to file class action lawsuits on behalf of the shareholders against Activision Blizzard. According to the lawsuits ATVI made false and misleading statements causing not foreseenable losses to the company’s investors.In other words they say that ATVI cheated investors. Not good news for sure and the earnings report is not yet released at this point.
You can guess, after these 4 month freefall ATVI missed the estimated 4th quarter (2018) earnings on February 12, 2019 by about 6% and their EPS was $1.29 vs. $1.28 estimate. It’s important to mention that ATVI made an all time record revenue year in 2018 which def doesn’t mean any trouble, at least financially.
Then on February 12, Activision Blizzard announced that they cut 8% of their workforce. In a way that everyone understands, they fire about 800 people. To be clear, yes they made an all -time record revenue year in 2018 then they fired 800 employees.But the weirdest thing is that the stock price started to go up a bit after this, probably because of cutting expenses.But it’s like cutting arms of a giant.Without that it will be much weaker and also slower.
This might not mean any good for the future. Also the fact that they didn’t do a paycut of the heads who make these decisions, instead of firing these people who could have helped a lot to recover faster, paints sinsiter clouds on the horizon.
Prospects are not shiny for Activision Blizzard right now and this situation is obviously not good for the company, their workers neither the investors.
We shouldn’t forget the fact that Activision Blizzard is huge and also strong enough to handle situations like this altough they’re not used to it. They were recently bombed with bad news and trouble (mostly thank to themselves actually). The company is navigating in a massive thunder but after every thunder the sea calms down and no thunder lasts forever.
They might be in a bit of a panic mode right now but they have the knowledge, the experience to position properly in this industry and their share will also recover but it might take longer than initially expected.
At least, the goodish point is that ATVI shares are not overvalued anymore (altough far from bragain) and now traded at a financially healthy level. And maybe just maybe (expecting no more bad news) ATVI reached the bottom, so the only way is up.The questions are how much up and when?
Don’t forget Sekiro : Shadows Die Twice just around the corner and it can give a bit of a boost to Activision. They also surely make long brainstorming sessions to get out of this pitfall.
The thing is that most of the trouble might have been caused by their will to meet the high expectations. This led to rushing and not necessarily good decisions. They also acted towards gamers and investors in a not satisfying way, in the last couple of months. It’s important to point that the aforementioned greed might have also been caused by the high pressure of investors. ATVI made numbers that any gaming company would be happy with. But the expectations are just way too high and investors keep pushing and Activision Blizzard try to fulfill these expectations.It’s not an excuse for being ethically false, because that’s surely an issue here, it’s just rather a kind of explanation.
It’s simple, if you force anything too hard it will break and something like that just happened with ATVI. They setup a trap, with a massive help of the investors, filled with overvaluation and way to high expectations then walked into it. Now it’s time to heal the wounds and let everyone calm down a bit.
The competition is higher than ever in the video game world. Many new games come and go, most of them fail or just simply fade away quickly but those who stay in sight mean more competition and they use the power of one of the strongest weapon “free” with “marketing” bullets. But despite all of the strong competition Activision Blizzard closed a record revenue year in 2018, altough not a strong 4th quarter that includes the Christmas buying madness.
As a huge company they must know the competition as they have tons of data and resources. They should be able to handle any situation adapting themselves to the new rules or if they can come up with something new and cool then dictate the rules, otherwise gamers will walk away and never look back.
Overall, Activision Blizzard is a financially very healthy company and there is a high chance, if they won’t take more bad steps, that they can recover by no longer than the end of 2019.
UPDATE September 15, 2019
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