Ac­tivi­sion Bl­iz­zard stock falls af­ter re­port of loom­ing lay­offs

‘Call of Duty’ maker sees num­bers slip as ri­vals en­ter mar­ket.

Los Angeles Times - - BUSINESS BEAT - By Sa­man­tha Ma­sunaga

With “Call of Duty,” Ac­tivi­sion Bl­iz­zard Inc. had a flag­ship ti­tle that cus­tomers would shell out for year af­ter year. And with “World of War­craft,” the firm had a prod­uct so en­thralling gamers would pay for a sub­scrip­tion, ex­pan­sions and in-game trans­ac­tions.

But the rise of com­pe­ti­tion from free or lower-cost games poses a chal­lenge for the Santa Mon­ica com­pany, which has seen an ex­o­dus of top ex­ec­u­tives and is re­port­edly plan­ning to an­nounce lay­offs Tues­day, which could num­ber in the hun­dreds.

In re­sponse to ques­tions about po­ten­tial job cuts, first re­ported by Bloomberg, an Ac­tivi­sion spokes­woman told The Times on Mon­day morn­ing that the com­pany doesn’t com­ment on “ru­mors and spec­u­la­tion.”

Ac­tivi­sion shares fell $3.30, or 7.6%, to $40.11 on Mon­day.

New com­pe­ti­tion from free mo­bile ti­tles such as “Fort­nite” is caus­ing some in­vestors to ques­tion whether Ac­tivi­sion’s strat­egy re­mains overly fo­cused on con­soles and PC gamers, an­a­lysts said.

“The key for the com­pany is go­ing to be to re­as­sure in­vestors that this is a growth com­pany,” said Matthew Thorn­ton, di­rec­tor of dig­i­tal en­ter­tain­ment and mar­ket­ing at SunTrust. “Re­as­sure that ex­e­cu­tion’s on track, the right per­son­nel is in place, the cost struc­ture is where it should be and that they’re go­ing to in­no­vate and drive growth. That’s what it comes down to: in­still­ing con­fi­dence.”

An­a­lysts ex­pect Ac­tivi­sion’s sales to de­cline by about 2% to $7.28 bil­lion this year.

The com­pany is slated to re­port its fourth-quar­ter earn­ings Tues­day, and ac­cord­ing to Bloomberg will an­nounce job cuts in­tended to cen­tral­ize func­tions and boost prof­its.

The gamemaker said dur­ing a Novem­ber earn­ings call with an­a­lysts that some of its key ti­tles, such as “Over­watch” and “Hearth­stone,” were see­ing flat or de­clin­ing num­bers of users. At the time, Ac­tivi­sion said Bl­iz­zard’s seg­ment rev­enue was up 20% com­pared with a year ear­lier, driven by “World of War­craft: Bat­tle for Aze­roth,” which “off­set lower rev­enue for ‘Over­watch’ and ‘Hearth­stone.’ ”

An­a­lysts are buzzing about “Apex Le­gends,” a new free bat­tle royale game from Res­pawn En­ter­tain­ment, which was ac­quired by Red­wood City-based Elec­tronic Arts Inc. in 2017. The game launched last week, and Res­pawn Chief Ex­ec­u­tive Vince Zam­pella said in a state­ment that more than 10 mil­lion peo­ple had played in the first 72 hours.

The ti­tle’s “strong mo­men­tum” has led to some in­cre­men­tal con­cern that “Apex Le­gends” could com­pete with Ac­tivi­sion ti­tles, such as “Call of Duty,” “World of War­craft” or “Over­watch,” said Colin Se­bas­tian, se­nior re­search an­a­lyst at Baird.

But Michael Pachter, re­search an­a­lyst at Wed­bush Se­cu­ri­ties, said the idea that “Apex Le­gends” would dom­i­nate all gam­ing was a “mis­per­cep­tion” and that gam­ing was not a “zero-sum con­cept.”

The com­pany has faced other head winds.

In Jan­uary, Ac­tivi­sion and Wash­ing­ton game de­vel­oper Bungie said it would end its part­ner­ship, with just one year left to go on a 10year con­tract. The com­pa­nies said in a joint state­ment at the time that Bungie would as­sume full rights and re­spon­si­bil­i­ties for the “Des­tiny” fran­chise.

The split came as Bungie strug­gled to meet Ac­tivi­sion’s sched­ule — in the orig­i­nal con­tract, Bungie said it would re­lease new “Des­tiny” games ev­ery two years, with the first com­ing in fall 2013. How­ever, the first in­stall­ment ac­tu­ally shipped a year later than ex­pected, with a sec­ond ti­tle go­ing live in late 2017.

In the Novem­ber earn­ings call, then-Chief Fi­nan­cial Of­fi­cer Spencer Neu­mann pointed to “Des­tiny,” along with some of Ac­tivi­sion’s other fran­chises, say­ing they were “not per­form­ing as well as we’d like.” He was later fired by Ac­tivi­sion and named CFO at Net­flix Inc. shortly af­ter.

Neu­mann was just one of sev­eral high-pro­file de­par­tures from the com­pany over the last year, in­clud­ing Eric Hir­sh­berg, chief ex­ec­u­tive of Ac­tivi­sion Pub­lish­ing, and Mike Morhaime, the long­time head of Bl­iz­zard. Tim Kilpin, a toy in­dus­try vet­eran re­cruited to lead Ac­tivi­sion’s con­sumer prod­ucts divi­sion two years ago, re­tired this month.

The ex­ec­u­tive turnover, spec­u­la­tion about pend­ing lay­offs and con­cern about mar­ket pres­sures are be­hind the stock dip, Se­bas­tian said.

“That spec­u­la­tion feeds into the wor­ries that busi­ness is not cur­rently very strong at Ac­tivi­sion,” he said.

Chris The­len Getty Im­ages

GAMERS COM­PETE at DreamHack At­lanta in Novem­ber. The rise of com­pe­ti­tion from free or lower-cost games poses a chal­lenge for Ac­tivi­sion Bl­iz­zard, which is set to an­nounce staff cuts Tues­day, Bloomberg says.

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