Activision Blizzard reported record revenue at $2.38 billion, that is 16.5% higher than last years revenue at this time, so why the doom and gloom? The company reported that that were estimating $3.04 billion which is quite a way off what they actually got, disappointing sales figures for Destiny 2 and an expected decrease in World of Warcraft subscriptions hit their revenue figures quite harshly. Despite their own internal struggles and dramas a lot of other titles that came out this year did outshine some of their which impacted on that revenue target, mostly from games that are free to play, for example Fortnite and the increase of players in Path of Exile an RPG that is similar in style to Diablo.
If you want to get into the detail as to why the difference in revenue from actual to expected matters it is based on the earnings per share (EPS) figure that investors love to see increase because it demonstrates an organisations profitability and the value of each share they are buying which is an important figure for investors. From this years revenue Activision Blizzard reported adjusted EPS at $0.90 but they were forecasting this to be at around $1.27 with other valuations from independent brokers to be a few cents higher or lower, but not under a dollar that’s for sure.
CEO Bobby Kotick has therefore issued several measures for the year ahead to address the gap in expected revenue to hopefully meet expectations next year. The plan will involve three steps and we’ll go through these in as much detail as we know about; prioritisation; investment; and restructure.
Prioritisation will be about analysing the games the organisation has on the books and essentially rank them based on performance in the market, we expect their AAA titles like Call of Duty, Overwatch, World of Warcraft, Heathstone, Diablo and even Candy Crush to be at the top of their list of priorities to focus on as being their most profitable games. Other games will be ranked into a second group and third and so on so forth – however Activision Blizzard doesn’t suffer fools, so if a game is not performing you can bet they’ll cut it dead pretty soon after release. In accordance with this Bobby Kotick has said that those in their top priority lists will have a 20% increase in developers to release high quality content and more releases to help boost the games even further – that’s the investment part.
The last part, restructure, is something that gamers and people all over the world hate to see – people losing their jobs. The organisation cannot carry out the investment part on the revenue they have and try to make that expected profit gap, they also need to cut costs. The approach will be to integrate many of its corporate divisions like sales, marketing and other areas to find savings there. The logic is to remove the ‘back office’ staff, re-invest that into the development areas and that will generate sales and revenue through high quality regular content delivery, something gamers cannot say no to. It has been stated that about 8% of the total workforce are at risk, according to calculations based on last years employee figures the organisation employees roughly 9,600 people so approximately 800 people will be losing their jobs.
Of course the instability created with the above will mean that the company will not meet the same records it hit this year. Activision Blizzard has already downgraded its forecasted revenue and EPS figures but has stated that this programme of organisational change will help the company long term and in meeting its revenue and profit targets. I’m sure as gamers we also hope it will increase even more the quality of content that is brought to us by the various teams working there and we all hope that those at risk of losing their jobs find one quickly afterwards if it comes to it. Another risk is that during all this restructure delays in development can occur, we expect a bumpy ride for Activision Blizzard this year but as always, their AAA titles will see them through no doubt.
You can read the official release of Activision Blizzards Q4 and full years results here.