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Activision Blizzard earnings encouraging due to ‘depth of outperformance’: Analyst

Raymond James Internet and Digital Media Analyst Andrew Marok joins Yahoo Finance Live to discuss quarterly earnings for Activision Blizzard, the state of the gaming space, post-pandemic user engagement, and the outlook for the video game industry.

Video transcript

JULIE HYMAN: Gaming companies are in the spotlight this week because of earnings. Activision Blizzard is one of them. It's getting a boost after reporting a 43% pop in net bookings in the fourth quarter year over year. Saw monthly active users increase to 389 million.

Raymond James internet and digital media analyst Andrew Marok joins us now to break down the quarter. Andrew, I have to say, a lot of my thoughts and questions about Activision don't have to do with the quarter and how it's doing now, but rather, what's going to happen with Microsoft, what's happening culturally inside the company. But before we get to that, give us your sort of high level takeaways about the quarter.

ANDREW MAROK: Sure, and thank you for having me on today. The quarter for Activision Blizzard was quite strong, we think. And notably, not only was it "Call of Duty," which we know had a blockbuster launch, being the fastest release in the franchise's history to garner a billion dollars in sales.

It was actually across the portfolio-- the Blizzard segment, which is home to "World of Warcraft," "Overwatch," "Diablo." "World of Warcraft" and "Overwatch" also had releases in 4Q. That was above our expectations as well. And even King, the mobile segment, which is dominated by the "Candy Crush" franchise, posted some pretty strong bookings growth as well. So the depth of the outperformance in the quarter, we think was the most encouraging part.

BRAD SMITH: OK, and so what have you seen? And as we're showing some of the net bookings for Activision Blizzard, bookings have been the larger question mark for a lot of the gaming companies, quite frankly, in the face of some of the weakness in the spend that the gamers are willing to come back in those in-game experiences and continue to pony up, have we been able to see any of the strength start to reemerge, or is this an instance where it's going to be kind of title by title, and thus, company by company basis, instead of a kind of broader tide type of situation?

ANDREW MAROK: Yeah, I think it's the latter. And that kind of goes into our thesis that we're moving away from some of the more exogenous factors that have impacted the gaming space over the last couple of quarters and even years with the moderation of pandemic engagement spikes, and now getting into the relative performance of the games of the pipelines being the most important determinants of the companies and stocks performance.

What we're seeing kind of right now is a divergence in the big franchises, which are getting bigger. Obviously, Activision with "Call of Duty" and "Overwatch" doing very well this quarter. EA citing FIFA as a particular point of strength boosted by the World Cup. And they're kind of diverging from the more lower and mid scale releases, which even large scale publishers like EA and Take-Two called out as kind of tough in the December quarter to compete against those bigger scale releases, where we think attention and spend is flowing to.

BRAD SMITH: Does that divergence make it more difficult for an Activision Blizzard, Microsoft to prove that there wouldn't be any disruption in the consumer environment, especially as they're trying to get this deal all the way done?

ANDREW MAROK: I think, in general, this is not a structural change that we're seeing. I think it's probably a bit more transient, given that if players are maybe a little bit more budget conscious at this point, choosing to engage with one experience over a number. But in general, the gaming industry has shown to be very robust in terms of at least the number of competitions.

It's a fairly low barrier to entry, high barrier to scale type of business, where a lot of independent games come to market every year. Many of them see a good amount of success. But in the end, it is a scale industry. The barriers to things like marketing and AAA development costs and things like that do benefit the larger players.

BRIAN SOZZI: Is-- James, is AI a friend or foe to video games?

ANDREW MAROK: In general, we would think that AI is likely a friend to gaming in that it can help either automate some of the development processes that are underway now in game development or create new opportunities for things like dynamically generated games and things like that, which would not have been possible, even a couple of years ago.

I think how we would analyze the AI through the lens of gaming is, how does it interact with the player experience? Does it make the player experience better? And if it can create new and innovative ways of players engaging with games, it's definitely a friend to the industry.

JULIE HYMAN: So, Andrew-- sorry-- to go back to Activision for just a sec, is Microsoft going to get the go-ahead or not? What do you think?

ANDREW MAROK: Well, that is the $69 billion question right now. The UK's Competition Markets Authority is likely to issue their provisional findings in the review of the deal any day now, we think at this point. And that will be very indicative as to where the deal is likely to progress. We've spoken to some experts who are a little bit more cautious on those prospects.

We've seen some reports that suggest that the UK is a little bit more optimistic on the deal. So, in short, it's kind of a-- it'll kind of be a bolt from the blue, I think, when we get those provisional findings because they do tend to be very indicative of what the final decision is meant to be. And we do believe that as the UK goes, the likely the other large geographies like the EU and the US are likely to follow.

JULIE HYMAN: We will be watching that closely then, Andrew. Thanks so much. Andrew Marok of Raymond James, appreciate it.

ANDREW MAROK: Thanks for having me.