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 firm, 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.”
Shares of Activision closed at $40.11, down 7.6%, 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% this year, to $7.28 billion. 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 game maker 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 the same time period 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 players 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 headwinds.
In January, Activision and Washington-based game developer Bungie said it would end its partnership, with just one year left to go on a 10-year 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 chief financial officer 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.