Activision Sees Headwinds After First-Quarter Tops Views

Activision Blizzard Inc. (ATVI), the largest U.S. video-game maker, fell the most in two years after offering a guarded outlook because of uncertain customer demand for new consoles and its “World of Warcraft” online game.

Activision declined 6.6 percent to $14.25 at 10:29 a.m. in New York. The Santa Monica, California-based company’s shares had dropped as much as 8.3 percent earlier, the most since February 2011, after Chief Executive Officer Bobby Kotick said with yesterday’s first quarter results that Activision faces challenges, including customer losses for “World of Warcraft.”

“The risks and uncertainties in the back half of 2013 are more challenging than our earlier view, especially in the holiday quarter,” Kotick said in a statement. He cited changing release dates for rival products, the disappointing introduction of Nintendo Co.’s Wii U and the unknown reception that awaits new consoles from Microsoft Corp. and Sony Corp.

The “World of Warcraft” game lost about 1.3 million subscribers, according to the statement. The company reported first-quarter profit that beat analysts’ estimates as digital sales for “Call of Duty” doubled.

Net income rose 19 percent to $456 million, or 40 cents a share, from $384 million, or 33 cents, a year earlier, Activision said. Excluding items, profit of 17 cents beat the 11-cent average of 21 analysts’ estimates compiled by Bloomberg.

The company, whose parent Vivendi SA (VIV) is studying options that may include divestitures, has weathered an industry decline on the strength of “Call of Duty” shooter games, the online multiplayer “World of Warcraft” and “Skylanders,” which marries a video game with collectible figures.

Quarterly Sales

“World of Warcraft” has seen its membership base decline by 1.9 million subscribers in just a year, said Michael Pachter, an analyst with Wedbush Securities Inc. in Los Angeles, who recommends the stock. He had forecast a 100,000-subscriber decline, less than a tenth of the loss.

“It’s becoming harder for them to keep the game fresh,” Pachter said. “They got a boost from the expansion pack and it’s hard to now keep those people engaged.”

First-quarter revenue increased 13 percent to $990 million from a year earlier. Excluding changes in deferred revenue, sales increased 17 percent to $804 million, compared with estimates of $705.1 million.

This quarter, Activision forecasts adjusted sales of $590 million, shy of the $601 million average of 22 analysts’ estimates. Profit is projected at 5 cents a share, in line with analysts.

Year Outlook

For the year, Activision predicts profit of 82 cents a share, excluding items, and revenue of $4.25 billion on that basis. Analysts are estimating profit of 85 cents on revenue of $4.28 billion.

Activision benefits from online follow-on sales of new content for games that go on sale at retail locations once a year. The company plans to release “Call of Duty: Ghosts” on Nov. 5

Activision, led by Kotick since 1992, is 61 percent owned by Paris-based Vivendi, also parent of Universal Music. The French company has been under pressure from investors to boost its share price, and Chairman Jean-Rene Fourtou last July said “it’s a possibility” his company may sell Activision.

Activision in February said it “is considering or may consider during 2013, substantial stock repurchases, dividends, acquisitions, licensing or other non-ordinary course transactions” and related debt financings, according to a statement.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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