Activision Blizzard (ATVI) delivered Q2 results that showed a significant decline from the year-ago quarter, even though earnings met consensus estimates.
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Q2 Revenues and Earnings Decline
Revenues dropped to $1.64 billion from $2.30 billion in the year-ago quarter. GAAP Revenues from digital channels were $1.47 billion. On the other hand, earnings per diluted share (EPS) was $0.48, a drop from $1.20 in the year-ago quarter, coming in line with consensus estimates of $0.48.
The weak results came as Activision faced a challenging economic environment characterized by high inflation levels and recession concerns. While other companies resorted to hiring freezes and layoffs in response to the challenging environment, the company grew its headcount by 25% in the quarter compared to the year-ago quarter.
Cash balance and Dividend
Activision Blizzard generated $198 million in operating cash flow in Q2, a 49% decline from $388 million in the year-ago quarter. Net bookings in the quarter fell to $1.64 billion compared to $1.92 billion in the year-ago quarter.
Activision Blizzard exited the quarter with 361 million Monthly Active Users (MAUs). Cash and short-term investments at the end of the second quarter stood at $10.8 billion. In addition, the company ended the quarter with $7.1 billion in net cash position. During the quarter, Activision paid shareholders a cash dividend of $0.47 per common share.
Executive Commentary on Earnings
Amid the revenue and earnings decline, Activision has taken the necessary steps to boost its development resources by acquiring Proletariat and Peltarion. According to Chief Executive Officer (CEO) Bobby Kotick, the acquisitions should also boost the company’s artificial intelligence and machine learning capabilities.
“Our talented teams are planning to release exciting new Call of Duty, World of Warcraft and Overwatch content later this year. Of course, we look forward to completing our pending $95 per share all-cash transaction with Microsoft as soon as possible,” Kotick said.
Wall Street is Cautiously Bullish on ATVI
The Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating, based on two Buys. The average Activision Blizzard price target of $95 implies 18.63% upside potential from current levels.
Best-Performing TipRanks Portfolios Are Buying Activision Stock
TipRanks’ Stock Investors tool shows that investor sentiment is currently Positive on Activision, with 3.5% of the best-performing portfolios tracked by TipRanks increasing their exposure to ATVI stock over the past 30 days.
Key Takeaway for Investors
Activision Blizzard is one of the companies reeling from the effects of high inflation levels and a challenging economic environment. Given the drop in revenue and earnings, it is becoming evident that consumers are spending less money on video games. However, the company has sought to strengthen its long-term prospects through acquisitions of Proletariat and Peltarion.
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