Activision Blizzard shares jump as competition from ‘Fortnite’ hurts less than feared

  • On Thursday Activision's management admitted on its earnings call that "Fortnite" is affecting the company's financials, but said overall business trends remain strong.
  • The company's CEO hinted Activision may do something in the same genre in the future.
  • As a result, one Wall Street analyst is optimistic over Activision's title pipeline the rest of the year.
Activision
David M. Benett | Getty Images

The surging popularity of Epic Games' "Fortnite" is not significantly hurting Activision Blizzard's gaming business.

The game publisher reported better-than-expected first-quarter earnings on Thursday and slightly raised its financial guidance for fiscal 2018. Its stock closed up 4.5 percent Friday.

Epic Games introduced the free-to-play "battle royale" mode for "Fortnite" on computers and gaming consoles in September. This mode allows up to 100 online players to violently battle each other to the death until only one player survives. T

he company revealed in January that the game has been played by more than 45 million people worldwide. It is also consistently the most streamed game on Twitch.

On Thursday, Activision's management admitted on its earnings call that "Fortnite" is affecting the company's financials, but said overall business trends remain strong.

"Yes, we've seen some near-term impact from battle royale. But as you heard on the call today, our business continues to perform at record levels," Activision's chief financial officer, Spencer Neumann, said. "We've got one of the broadest and most diverse portfolios of successful franchises across genres, across platforms, and across business models."

The company's CEO then hinted Activision may do something in the same genre in the future.

"I would just add the long history of our company. When we see people innovate in an interesting and impactful way, we are very quick to figure out how to capture inspiration from innovation," Chief Executive Officer Bobby Kotick added on the call. "And so we as a company, in our DNA, in our culture, when we see things that appeal to our audiences, we are very good at being inspired by those."

As a result one Wall Street analyst is optimistic over Activision's title pipeline the rest of the year.

"As we expected, the company indicated that Fortnite is having some near-term impact, but also suggested the Battle Royale mode will be integrated into upcoming titles," Piper Jaffray analyst Michael Olson wrote in a note to clients Friday. "Big 2H'18 on tap … Activision management has historically under-promised and over-delivered."

Olson reiterated his overweight rating and $75 price target for Activision Blizzard shares, implying the stock could gain 12 percent from Thursday's closing price.

Bank of America Merrill Lynch agreed that "Fortnite"'s impact on Activision will be limited.

"We think Fortnite activity will peak this year, and ATVI and EA can start winning back users with new content in the fall," analyst Justin Post wrote in a note to clients Friday. "As for sector read across on Fortnite, there is an impact, but so far it seems contained and many games will add Battle Royale modes in 4Q."

Post reiterated his buy rating on the company's stock. He lowered his price target to $76 from $77 for Activision Blizzard shares.