Activision Blizzard had a great quarter, this investor says

A toxic work culture at Activision Blizzard (Activision Blizzard Stock Quote, Chart, News, Analysts, Financials NASDAQ:ATVI) will certainly pose problems for the video game developer but operationally, the company is still firing on all cylinders, according to portfolio manager Kim Bolton.

“We don’t own it in our fund but we have it in some of our separately managed accounts,” said Bolton, president of Black Swan Dexteritas, speaking on BNN Bloomberg on Wednesday.

“They had some litigation issues which drove the stock down because of a toxic culture there that was very chauvinist and so on, and they actually had a number of employees walk out. That drove down the stock six, seven per cent but then they just reported with great reporting on both the top and bottom lines,” he said.

News broke earlier this week that Activision Blizzard President J. Allen Brack would be leaving the company amid discrimination and sexual harassment allegations which point to a toxic environment for women at the company. In July, the California Department of Fair Employment and Housing filed a suit alleging discrimination and sexual harassment against women and a ‘frat boy’ working culture where few women are promoted to senior roles and those that are promoted receive less pay than men for equal work. 

“Unsurprisingly, Defendants’ ‘frat boy’ culture is a breeding ground for harassment and discrimination against women,” the Superior Court lawsuit reads. “Female employees are subjected to constant sexual harassment, including having to continually fend off unwanted sexual comments and advances by their male co-workers and supervisors and being groped at the ‘cube crawls’ and other company events. High-ranking executives and creators engaged in blatant sexual harassment without repercussions.”

But many employees have so far been critical of management’s response, holding a walkout session and putting thousands of signatures from current and former employees on a letter chastising the company’s response to the suit, which reportedly included an internal letter from Chief Compliance Officer Frances Townsend which scoffed at the allegations, saying they were ‘incorrect and out of context.’

Last week, Activision CEO Bobby Kotick wrote a letter to employees in which he apologized for the company’s initial ‘tone deaf’ response to the suit and pledged to ‘do everything possible’ to improve the workplace environment at the company and listing a number of new initiatives put in place regarding employee support, hiring practices and personnel.

But the hammer came down this week on President J. Allen Brack whose departure came without detail as to the cause of his leaving. Instead, the announcement focused on his replacements, Jen Oneil and Mike Ybarra.

“I am confident that Jen Oneal and Mike Ybarra will provide the leadership Blizzard needs to realize its full potential and will accelerate the pace of change,” Brack wrote in the August 3 letter. “I anticipate they will do so with passion and enthusiasm and that they can be trusted to lead with the highest levels of integrity and commitment to the components of our culture that make Blizzard so special.”

More shake-ups at the top may soon follow, but events have already impacted the company’s share price, which has fallen about ten per cent over the past week. ATVI had been having an overall even year in terms of return but the stock had been up about 15 per cent over the past 12 months before the lawsuit surfaced.

Activision announced on Tuesday its second quarter earnings for 2021, showing revenue of $2.296 billion compared to $1.932 billion a year earlier and adjusted earnings of $0.91 per share. Analysts had been calling for earnings of $0.76 per share. Operating cash flow came in at $388 million compared to $768 million a year earlier, with trailing twelve month operating cash flow at $2.57 billion. 

Management said the company’s increased investment in recent years in its largest franchises have paid off, with Call of Duty hitting new highs in sustained reach, engagement and player investment, World of Warcraft seeing growth in net bookings and the company’s King segment seeing 15 per cent revenue growth.

Bolton said Activision’s strong quarter should be keeping the stock on investors’ radar.

“Their flagship franchises like Call of Duty and World of Warcraft and Candy Crush make them the world’s largest third-party video game publisher and it’s certainly the place to be involved,” Bolton said.

“That litigation is still there, but they seem to be firing on all cylinders. So, not only in the supply side are they are they servicing but on the demand side they’re very, very strong,” he said.

Commenting on Activision’s second quarter results, Kotick wrote in a press release, “We are pleased that the company continued to deliver strong results in the second quarter, and we are raising our outlook for the year.”

“We remain intensely focused on the well-being of our employees and we are committed to doing everything possible to ensure that our company has a welcoming, supportive and safe environment where all of our team members can thrive,” he said.