Shares of game developer Activision Blizzard Inc. (ATVI, Financial) rose over 3.89% after the closing bell on Tuesday on fourth-quarter 2018 earnings results. The company’s stock is down over 43% in the last six months due to a decline in earnings per share and revenue.
Net revenues for the year hit $7.50 billion, up from $7.02 billion in 2017. Digital channels were attributed to $5.79 billion in GAAP net revenues.
Net revenue was $2.38 billion for the quarter, up from $2.04 billion in the prior-year quarter. GAAP operating margins were 29%.
Earnings per share reached 84 cents in the final quarter of 2018 with net income of $650 million. U.S. tax law changes caused the company to report a $584 million loss, or 77 cents per share, in the year-ago period.
Despite the record year, investors were discouraged by guidance and the rise of free-to-play games.
Guidance is a concern for investors, as the company aims to strengthen their security, add to their portfolio of games and attract new users. The company’s two-factor authentication for Windows along with an app has helped secure user accounts for the company’s titles.
Forecasts for the first quarter of the new fiscal year have earnings per share at 20 cents and revenue at $1.18 billion. Full-year guidance has revenue falling to $6.3 billion, with earnings of $2.10 per share.
Activision Blizzard also announced it will be slashing 8% of its workforce, laying off hundreds of people as sales remain sluggish.
Free-to-play games have increased competition for the gaming industry. Electronic Arts (EA) also cited increased competition last week, causing the company’s shares to dip 14%.
Activision plans to focus on its major titles in 2019, including "Warcraft," "Overwatch" and "Call of Duty." The game titles have had a 20% increase in the number of developers working on them, but other titles will see a decline in resources. Investments in other games will be a focal point of cost reductions.
Restructuring is expected to cost the company $150 million.
Activision Blizzard plans to invest more in large titles in an attempt to bring players back to games like "Diablo" and "Warcraft," which have both struggled to maintain their bases.
Upfront game releases for certain, unnamed business segments will be limited.
The company said it failed to meet its potential in 2018 and will make a number of important leadership changes to correct issues going into 2019.
Disclosure: The author does not have any stakes in the listed equities.
