The Ratings Game: Activision Blizzard stock eyes worst day in 13 years following downgrades

United States

Activision Blizzard Inc. shares plummeted Wednesday after the videogame publisher said two of its anticipated game releases would be delayed as the company seeks to right its ship following allegation of sexual harassment and discrimination.

Activision Blizzard ATVI, -15.04% shares dropped as much as 17% to an intraday low of $ 64.55 and were last down 15%, putting them on track for their worst day since Nov. 14, 2008, when shares closed down 15.6%, according to Dow Jones data. The stock was Wednesday’s worst performer on the S&P 500 index SPX, -0.11%, which was down 0.1%, and the Nasdaq-100 Index NDX, +0.07%, which was flat.

Late Tuesday, the company turned in an earnings beat, but that mattered little as it also issued lighter-than-expected guidance and announced unspecified delays in the release of two of its highly anticipated games.

“While we are still planning to deliver a substantial amount of content from Blizzard next year, we are now planning for a later launch for ‘Overwatch 2’ and ‘Diablo IV’ than originally envisaged,” said Daniel Alegre, the company’s chief operating officer, on late Tuesday’s conference call with analysts.

Delays in game releases have become more commonplace as publishers seek to avoid releasing games that may still have bugs, especially since CD Projekt SA’s   CDR, +0.10% long-awaited and long-overdue release last year of “Cyberpunk 2077” that forced distributors like Sony Group Corp.  6758, +0.22%  to offer full refunds. Still, the announced delays from Activision Blizzard were particularly cutting as many analysts were expecting the games to be significant contributors to 2022 results.

Activision Blizzard publishes such games as  “Call of Duty” through its Activision label; “World of Warcraft,” “Overwatch,” and “Diablo” through its Blizzard label, and “Candy Crush” through its King label. Activision Blizzard has been in full damage control mode for more than a full quarter, since corporate’s perceived tone-deaf response to allegations of sexual discrimination and harassment charges blew up, leading to an employee walkout. The company also announced late Tuesday that Jen Oneal, who was appointed co-head of Blizzard back in August, was already stepping down.

Read: People are still playing a lot of videogames, but how much?

Morgan Stanley analyst Brian Nowak downgraded Activision Blizzard’s stock to equal weight from overweight and slashed his price target to $ 65 from $ 120. The only reasons he didn’t downgrade the stock to underweight is that Activision Blizzard still has strong franchises, and that the anticipated games are still coming at some point.

“We were wrong about ATVI’s ability to execute and deliver its Overwatch 2 and Diablo IV pipeline in the middle of a period of high internal turmoil related to harassment challenges, multiple management changes (including the newly-announced departure of Jen O’Neal only 3 months into the role of co-head of Blizzard), and work from home,” Nowak said.

Nowak now expects Diablo IV to be released in 2024 and Overwatch 2 to be release in 2023.

MKM Partners analyst Eric Handler downgraded Activision Blizzard to neutral from buy and cut his price target to $ 75 from $ 108. He also said he’s “not convinced all the bad news is out.”

“The Blizzard Studio disruptions with game development and ongoing personnel departures stemming from the California Department of Fair Employment and Housing lawsuit are proving more problematic than anticipated,” Handler said.

On Tuesday’s call, Chief Executive Bobby Kotick acknowledged the company fired more than 20 employees related to allegations of sexual harassment and discrimination over the past quarter.

“With increased uncertainty towards the every-other-year release of a WoW Modern expansion pack and for the various mobile titles currently in development, the 2022 projected growth curve has substantially flattened from our prior view,” Handler said.

Of the 33 analysts who cover Activision Blizzard, 27 have buy ratings and six have hold ratings. Of those, 18 cut their price targets on the stock resulting in an average target of $ 100.35, down from a previous $ 113.17.

Other videogame publishers were feeling the heat. Playtika Holding Corp. PLTK, -24.93% shares sank 25% after the company reported quarterly results and an outlook that was below Wall Street expectations early Wednesday.

Shares of Take-Two Interactive Inc. TTWO, +0.01% and Electronic Arts Inc. EA, -0.96% were trading at fractional gains on Wednesday. Both company are scheduled to report their earnings after the close of trading on Wednesday.