Activision Blizzard (ATVI) Slumps on Bleak World of Warcraft Declines

Shares of video game publisher Activision Blizzard (ATVI) slipped last week, despite reporter strong first quarter earnings that beat analyst estimates on both the top and bottom lines. For its first quarter, Activision earned an adjusted $0.17 per share, up from $0.06 in the prior year quarter. This topped Wall Street estimates by 6 cents per share. Revenue also grew from $587 million to $804 million, beating the consensus estimate by $100 million.

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The company, which owns the Call of Duty, World of Warcraft, Starcraft and Diablo franchises, also announced its second installment of real-time strategy game Starcraft II, Heart of the Swarm, was the best selling PC game during the quarter. Yet a single figure spooked investors. World of Warcraft, its flagship massive multiplayer online role-playing game, reported a quarterly loss of 1.3 million users, hitting a 6-year low of 8.3 million users. World of Warcraft is considered Activision's cash cow, since it has operated on a paid subscription model since its initial release in 2004. That single game accounts for nearly a third of Activision's annual revenue. In the past, every time World of Warcraft's user base has declined, Activision has released a new expansion to revive sales. Yet that tactic has faced diminishing returns, and its newest expansion set, Mists of Pandaria, has failed to attract new users. Increased competition from newer free-to-play games, such as Riot Games' League of Legends, has stolen users from both World of Warcraft and Starcraft, both of which are tremendously popular in Asia. In response, Activision recently made World of Warcraft free-to-play up to Level 20 in an attempt to attract new users. To add insult to injury, Activision offered full-year guidance for $0.80 to $0.82 per share, lower than the consensus estimate of $0.85. CEO Bobby Kotick warned that the company would face a tough year due to uncertainties regarding the global economy as well as gamers waiting for the upcoming eighth generation of consoles, which are due out later this year. The eighth console generation, which started with Nintendo's dismal launch of its Wii U, is expected to pick up later this year when Microsoft (MSFT) and Sony (SNE) respectively release the new XBOX and PS4 near the holiday season. Shifts in the release schedules at competitors Electronic Arts (EA) and Take-Two (TTWO) are also causes for concern for Activision. Looking ahead, Activision is expected to release a new installment of its best-selling first-person shooter franchise, Call of Duty, during the 2013 holiday season. Call of Duty is the company's most profitable franchise, accounting for nearly half of its annual EBITDA. Activision is also expected to release a new franchise, Destiny, with Bungie Studios, the makers of Halo, later this year. Activision currently trades at 14.66 times forward earnings with a 5-year PEG ratio of 2.26. The stock also pays an annual dividend of $0.19 per share, a 1.27% yield at current prices. Other News About ATVI Activision Blizzard: Expectations Raised, Shares Down Activision plunges on World of Warcraft subscriber loss. Activision Sees Headwinds After First-Quarter Tops Views Activision sees challenges ahead. Other Stocks in the News Groupon: Going, Going, Gone... Can Groupon bounce back? These 2 Restaurants Can Offer Beefy Returns Is beef the answer for hungry investors? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on May 13, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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