What Happened

Activision Blizzard posted Q3 results after markets closed on November 7. Good news first. Blizzard Activision beat expectations on both revenue and EPS. While these numbers were lower than this time last year, they were significantly higher than expected. The bad news is that their monthly active users continued to slide, albeit not as fast as it slid this time last year.

(Below is Investopedia's original earnings preview, published 11/4/19)

What to Look For

Video game publisher Activision Blizzard Inc.'s (ATVI) presentation at its annual BlizzCon convention last week in California illustrates the challenges facing the company. Several analysts said the publisher's new line of video games fell well short of expectations, just as demonstrators outside the hall protested the company's banning of an esports player who supported political protests in Hong Kong. Now, as Activision Blizzard reports earnings on November 7 for Q3 2019, the company hopes impressive Monthly Active User (MAU) figures will offset that bad news and help it to move forward.

Activision Blizzard stock is down more than 19% in the past 12 months, although this figure is primarily due to a steep decline that occurred surrounding the Q3 2018 earnings report last November. Analysts expect Activision Blizzard to report significant declines in GAAP earnings per share (EPS) and revenue for Q3.

One Year Total Return for S&P 500 and Activision Blizzard
Source: TradingView.

Activision Blizzard also saw Q3 revenue decline sharply between Q3 2017 and Q3 2018. Analysts expect that the Q3 2019 decline will be even greater this year. GAAP EPS is somewhat more varied; this figure grew between Q3 2017 and Q3 2018, but EPS for Q3 2019 is expected to decline by 68% compared to the same quarter a year earlier. Announced Q2 EPS represented an upside surprise of close to 86%. Since the last earnings report, Activision Blizzard stock has risen, although this was not an immediate reaction to the release of earnings figures.

Activision Blizzard Key Metrics
  Estimate for Q3 2019 Q3 2018 Q3 2017
Earnings per share $0.11 $0.34 $0.25
Revenue (in billions) $1.16 $1.51 $1.62
Monthly Active Users (MAU) N/A 345 million 384 million
Sources: YCharts and Activision Blizzard

Activision Blizzard's monthly active users, also known as MAUs, is the number of unique visitors to a website or online game per month. It's a key metric for video game companies because it not only reflects the company's popularity, but it also is linked with earnings potential. Activision Blizzard games generate revenue not only from the cost of purchasing or playing a game, but also through additional sales of in-game content. In-game purchases are items that a player can buy to improve a character or enhance the video game experience, according to the website Techopedia. Indeed, Activision has been able to generate billions of dollars in annual revenue through in-game purchases without the help of a single new game release in the past.

In order for the company to continue to generate substantial revenue from this area, however, it must attract a consistent and growing user base. This has proven to be difficult for Activision Blizzard in recent months and years. MAU fell from Q3 2017 to Q3 2018, and then again to Q2 2019, when only 327 million monthly active users were counted. In the face of backlash over the Hong Kong controversy, investors should watch the upcoming earnings report to see if Activision Blizzard has been able to stem the decline in monthly active users in the past quarter.