Why Activision Blizzard Stock Dropped 28% in November

What happened

Shares of Activision Blizzard (NASDAQ: ATVI) plunged 27.8% last month, according to data from S&P Global Market Intelligence, following a weak outlook for the holiday quarter as announced in the company's third-quarter earnings report in early November.

So what

The game maker reported revenue of $1.51 billion, down from $1.62 billion in the prior year's quarter. Adjusted (non-GAAP) earnings per share came in at $0.42, down from $0.47 in the year-ago quarter. Both revenue and earnings exceeded management's guidance for the quarter. However, the company's guidance for the fourth quarter fell short of Wall Street's expectations, and that sent the shares tumbling.

The stock had been up more than 20% year to date through September but started to fall in October along with the broader market. Making matters worse was that initial sales of the highly anticipated Call of Duty: Black Ops 4 -- released on Oct. 12 -- didn't exceed last year's sales of Call of Duty: WWII. That fed the perception that Activision is struggling to hold on to its player base as Fortnite and other popular shooters compete for players' time. The company reported that its monthly active users dropped 2% sequentially to 345 million.

Also, the company received a muted response to its announcement at BlizzCon in early November of a new mobile game it's working on called Diablo Immortal. Diablo is one of Blizzard's flaghship franchises, and investors took the lack of enthusiasm to mean that the company is not doing a good job of delivering what gamers want.

Now what

Despite the negatives, Call of Duty: Black Ops 4 generated record-level player engagement immediately following its launch. Management is "energized" about the momentum they see in the Call of Duty franchise, but not all games are performing that well.

Management said they are addressing gamer feedback and plan to "improve the pace of innovation and the cadence of in-game content." Activision generates over $4 billion annually from sales of in-game content, which is the majority of its total revenue. As long as monthly active users are declining, it makes it more difficult to grow this important area of the company's business.

The future of the company still looks bright, which could make the recent slide a good buying opportunity. Analysts still expect Activision to grow earnings at a double-digit rate over the next five years. The game maker is working on several things, including esports, consumer products, and in-game advertising, which could significantly grow revenue and profits over the long term.

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John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.