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Video Game Editor Activision Blizzard (ATVI) beat Wall Street's targets for the first quarter on Thursday, but was well below its outlook for the second quarter. Activision's stock fell on Friday.
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The company, based in Santa Monica, California, posted adjusted earnings of 31 cents a share on net orders of $ 1.26 billion in March. Wall Street forecast earnings per share of 23 cents per share on net orders of $ 1.22 billion. On an annual basis, earnings per share declined by 18%, while net orders fell 9%.
For the current quarter, Activision has forecast earnings per share of 23 cents per share on net orders of $ 1.15 billion. Analysts expect earnings per share of 37 cents on a $ 1.27 billion business figure in the June quarter.
Analysts were also worried about the decline in the number of monthly active users for Activision's key game franchises.
Shares of Activision have fallen 4.8% to 47.15 on the stock market today. On October 1, it reached an all-time high of 84.68 before starting its decline on weaker prospects for 2019.
Activision report called "very alarming"
Todd Juenger, an analyst at Bernstein, said Friday in a report to clients that the Activision report was "very alarming".
The red flags include "the significant drop in revenue and earnings per share for the second quarter" and "ubiquitous, often brutal declines" in the number of monthly active users and revenue indicators for all Franchises, excluding King, "he said King is the Activision mobile gaming unit.
Juenger maintained its market rating on Activision's stock and reduced its price target from 41 to 40.
Monthly active users fall 8% from the previous year
Gerrick Johnson, an analyst at BMO Capital Markets, has echoed these concerns. He noted that the total number of monthly active users of the company had dropped 8% in one year, to reach 345 million.
Activision Publishing saw its user base fall by 20% in one year, to 41 million players, at the time of the removal of its franchise game "Destiny".
The Blizzard unit of the publisher saw its user base decrease by 16% over the previous year, to 32 million. The likely interest in "Overwatch" and other titles was probably the culprit.
Activision's King Unit, best known for "Candy Crush," saw its user base drop by 5% to 272 million players.
"Overall, this is the ninth consecutive quarter in a year-over-year decline in UMU," Johnson said in his customer note. "Given the limited number of projects underway for 2019, we expect that negative trends in UAM will continue."
Activision is competing to gain time and attract the attention of players with rival games such as "Fortnite" Epic Games and "Apex Legends". Electronic Arts (EA).
Johnson evaluates Activision shares based on market performance with a target price of 40.
Activision Stock: 2019 Called 'Year of transition'
Other analysts have remained optimistic about Activision's prospects, but have qualified 2019 as a "transition year."
Morgan Stanley analyst Brian Nowak reiterated his overweight position in Activision, but lowered his price target from 55 to 55.
"Expectations have recovered and remain low as 2019 seems to be a transition year," he said in his note. "The successful launch of new games (mobile / free options) will be important to transform investors' rhetoric, but we remain optimistic about the long-term opportunities ahead."
Activision has evoked its upcoming mobile game "Call of Duty" and a new franchise console game as motors of the business. The company is also launching a new sports league for its "Call of Duty" franchise.
The top five professional teams in the Call of Duty league will be in Atlanta, Dallas, New York, Paris and Toronto, the company said Thursday. The league will follow the Activision model created for its Overwatch League.
Zynga Stock Report on Earnings Increases
Elsewhere in the industry, mobile game publisher Zynga (ZNGA) continued to climb on Friday after posting a better-than-expected report for the first quarter on Wednesday.
Zynga shares rose 3.6% to 6.03 on Friday. Thursday, it rose 5.6%.
The San Francisco-based company recorded net orders of $ 359 million, up 64% from March. Analysts were forecasting net orders of $ 327.8 million.
He announced earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 75 million. Wall Street was forecasting $ 58.7 million. Zynga's advice also dominated the views.
Successful games such as "Words with Friends" and "Empires & Puzzles" boosted Zynga's first quarter results.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories about consumer technology, software and semiconductor companies.
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