By Liz Kirbayeva | firstname.lastname@example.org | StockMarketNews.Today
Activision Blizzard Inc. said it plans to cut about 8% of its workforce as it grapples with changes in how people buy and play videogames. The cuts will eliminate around 775 people from Activision Blizzard’s workforce of about 9,800. The company expects to record $150 million in pretax charges in connection with the moves, most of which will be incurred this year.
The job cuts underscore the tough environment videogame makers face as players increasingly sink their time and money into only a handful of games they can play in perpetuity—the current king being “Fortnite.” The stakes are high: Players who aren’t kept busy in one game might take their time—and money—to a rival.
Activision Blizzard sounded that theme again Tuesday, telling analysts it plans to add to its developer team to produce content for existing franchises more quickly. As part of the restructuring, Activision Blizzard plans to boost its number of developers by about 20% in 2019 to ramp up new content for its biggest franchises, such as the shooter game “Call of Duty”.
Releasing new content has been a critical strategy for Epic Games Inc., the maker of “Fortnite.” While the combat game’s popular battle-royale mode is free, it is estimated to have made $2.4 billion in revenue from virtual goods since launching in September 2017, according to SuperData Research. Electronic Arts Inc. on its earnings call last week blamed intense competition from “Fortnite” and other games for turning in quarterly revenue below guidance.
On Activision Blizzard’s call, analysts asked whether the company would consider making its shooter game “Overwatch” free, particularly after Electronic Arts launched a free battle-royale game last week called “Apex Legends.” Operating chief Collister Johnson demurred, saying the company prefers to focus on creating compelling content.
Activision Blizzard’s three main units—Activision Publishing, Blizzard Entertainment and King—operate with some autonomy, and the cuts are aimed at centralizing sales, marketing and other functions with the parent company.
Shares rose 3.3% after hours, despite Activision Blizzard’s softer-than-expected guidance for 2019. The stock has lost more than half its value since closing at $83.39 on Oct. 2, dragged lower as part of the broad tech selloff in the fall, and hammered again last week following earnings from rivals Electronic Arts and Take-Two Interactive Software Inc.
Activision Blizzard reported profit of $650 million, or 84 cents a share, compared with a loss of $584 million, or 77 cents a share, a year earlier, when the company took a hit from the new U.S. tax law. On an adjusted basis, Activision Blizzard earned 90 cents a share, ahead of the 84 cents expected by analysts, according to FactSet.
Revenue rose 17% to $2.38 billion. On an adjusted basis, revenue came to $2.84 billion, below the $3.04 billion analysts expected. “We didn’t execute as well as we hoped to in 2018,” Chief Executive Bobby Kotick told analysts, “and our current outlook for 2019 falls below what is possible in an industry filled with growth opportunities.”
For the full year, the company projected adjusted earnings of $1.85 a share on $6.03 billion in revenue. Analysts had expected $2.34 a share on $7.45 billion in revenue. Exacerbating Activision Blizzard’s woes is a thin slate of games for the coming year. The company’s Blizzard Entertainment unit didn’t announce release dates for any new games at its annual convention in November.
“We’re making changes to enable our development teams to create better content for our biggest franchises more quickly,” Mr. Kotick told analysts. Activision Blizzard also plans to launch a new city-based league for “Call of Duty,” akin to its existing “Overwatch” league. In its latest quarter, the company said its number of monthly active users rose about 11 million to 356 million after declining for three consecutive quarters.
Separately, several top executives have left Activision Blizzard in the past year, including Blizzard founder Mike Morhaime and the unit’s finance chief, Amrita Ahuja. The parent company fired its finance chief, Spencer Neumann, in early January after he was poached by Netflix Inc. for the same position. On Tuesday the company said its board had approved a new program to buy back up to $1.5 billion of its stock over the next two years.