Activision forecast miss clouds esports push, shares drop

By Arjun Panchadar
FILE PHOTO: The Activision booth is shown at the E3 2017 Electronic Entertainment Expo in Los Angeles, California, U.S. June 13, 2017. REUTERS/ Mike Blake

By Arjun Panchadar

(Reuters) - Activision Blizzard Inc forecast second-quarter adjusted profit below estimates on Thursday, as the videogame maker puts more money into its franchises to battle competition from blockbuster games "Fortnite" and "Apex Legends".

Shares of the company fell 5 percent in extended trading, overshadowing better-than-expected first-quarter adjusted revenue and profit.

Activision, which continues its esports push, also revealed the first five franchises of its new city-based Call of Duty league, which follows its highly successful Overwatch league. The cities are Atlanta, Dallas, New York, Paris and Toronto.

However, Chief Financial Officer Dennis Durkin said on a post-earnings call the company does not expect to recognize material revenue and income from Call of Duty esports team sales and new mobile initiatives for Activision or Blizzard this year.

The company has labeled 2019 a "transition year", cutting about 800 jobs and focusing on investing more in developing its game franchises "Call of Duty", "Candy Crush", "Overwatch", "Warcraft", "Hearthstone" and "Diablo".

Activision said in February the number of developers working on its games will increase by about 20 percent over the course of 2019.

The company is set to release a new "Call of Duty" title in the second half of 2019, while its "Call of Duty" game for mobile phone users is slated for a worldwide launch.

The company earned 31 cents per share in the first quarter, beating estimates of 25 cents, according to IBES data from Refinitiv.

"Our earnings overperformance in Q1 was primarily driven by the timing of expenses," Durkin added.

"With the bulk of our content lineup still ahead of us, we are still planning to incur these expenses this year, particularly as we see an abundance of opportunity to invest and support our franchises ...," he said.

The company forecast current-quarter adjusted revenue of $1.15 billion and profit of 23 cents per share, missing analysts' average estimate of $1.28 billion and 37 cents per share.

The company reaffirmed its full-year guidance for adjusted profit and revenue.

Analysts suggested that the company not raising its guidance despite a healthy first-quarter earnings beat and not revealing any new game plans for the next year may have disappointed investors.

Activision reported total adjusted revenue of $1.26 billion for the first quarter, topping estimates of $1.24 billion, boosted by demand for its "Candy Crush" and "Sekiro: Shadows Die Twice" games.

Activision said its Sekiro videogame, launched in March, sold-through more than 2 million copies worldwide in less than 10 days.

(Reporting by Arjun Panchadar in Bengaluru; Editing by Maju Samuel)