Activision Blizzard offers a grim warning for the future
New York(CNN Business) People still love swiping on virtual candy. But Activision Blizzard warned a slumping global economy and a changing retail landscape are threatening its business.
The video game industry is turning to digital sales and Activision's reliance on traditional brick-and-mortar retail sales could jeopardize the company's future, Activision (ATVI) said Thursday. The weakening euro and pound are also hurting Activision's bottom line, and the company said those headwinds would continue.
"The environment remains competitive," said Dennis Durkin, CFO and president of Activison, during a call Thursday with Wall Street analysts. "We see a wider range of outcomes for the second half" of 2019, he added.
The company said it expects to bring in sales of just over $1.1 billion this quarter, with non-GAAP earnings per share of 20 cents. That's well below analysts' expectations of $1.4 billion and 40 cents.
Activision recorded $1.7 billion in revenue a year ago, bolstered by expansions in two of its hit video game franchises: "Destiny" and "World of Warcraft." Wall Street didn't expect Activision's forecast to beat last year's numbers, but it was hoping for more than $1.1 billion.
The estimate for the third quarter "sounds pretty conservative," said Michael Pachter, analyst at Wedbush Securities. "They are being pretty wimpy." He anticipates the third quarter being at least flat in sales.
Despite its lousy outlook, Activision gave investors some reasons to be hopeful.
"Candy Crush Saga" and its many spinoffs propelled Activision Blizzard to a better-than-expected second quarter. Its earnings exceeded Wall Street's expectations.
Candy Crush remains the top-grossing app in the United States. King, the developer which makes Candy Crush and is owned by Activision, brought in revenue of $499 million during the second quarter.
"Candy Crush continues to crush it," said CEO Robert Kotick, during a call with investors Thursday.
Activision's other popular titles performed well, too. "Call of Duty: Black Ops 4," and "Hearthstone" grew sales and the number of monthly active users rose on both games. The company plans to continue expanding upon its well-worn franchises. The Overwatch League is set to hold its grand finals in Philadelphia next month, with a $1.7 million prize pool between the top two teams.
"We remain the industry leader in esports," Kotick said.
Overall, the company reported a net income of $328 million in the second quarter, an 18.4% decline compared to last year.
Revenue was also on the downturn. Activision recorded $1.4 billion in sales compared to $1.6 billion a year ago.
Coddy Johnson, Activision's president and chief operating officer, partly blamed the decline in sales on the loss of the Destiny franchise. Activision, which had partnered with developer Bungie to publish Destiny games, parted ways with Bungie in January this year, citing Destiny's failure to meet the publisher's financial goals.
In February, the company announced it was laying off 8% of its workforce and restructuring the business to focus on its flagship games.
The stock was up by 2.56% Friday. Earlier this week, video game stocks tumbled after Trump's comments on Monday linking games to gun violence, but recovered Tuesday.
