Activision Blizzard published it’s fourth quarter 2018 results on February 12 and CEO Bobby Kotick announced the company had “record results in 2018” as outlined in the company’s breakdown by product line:

Looking in detail at the company’s revenue breakdown by region, distribution channel and platform we see that all segments have experienced growth of between 6% to 20%.

Even with these strong results the company announced it was laying off close to 800 people, or 8% of its 9600+ workforce as part of a new restructuring plan. Activision has signaled that 2019 is a transition year. The company says it does not expect to be able to improve on in-game monetization quickly. They also plan to focus on their core franchises as competition from games like Fortnite and now Respawn’s Apex League are taking a big bite out of the consumer’s attention.

Aside from the announced layoffs Activision is also planning a $1.5 billion share repurchasing plan. Given the stock is at a 12 month low, this seems most timely that they would issue a buy back now that the stock is $44.60 a share.

In a statement Kotick made during the company’s Q4 earnings meeting, he commented:

“Over the last few years, many of our non-development teams expanded to support various needs. Currently, staffing levels on some teams are out of proportion with our current release slate. This means we need to scale down some areas of our organization in the US today. In our regional offices, we anticipate similar evaluations, subject to local requirements.”

There are several glaring issues with the announcement and timing of these layoffs. The first is that the company has had record earnings for the year, yet the line item circled in red below indicates payouts for “share-based compensation expenses” which was $209 million for 2018. As a percentage of revenue this is on the low end for most tech companies at 2.7%. However it is up signficantly from 2017 when it was $178 million, an increase of 15% for the year.

The second, is that less than a month ago Activision gave its incoming CFO, Dennis Durkin an employment package of:

  • $3.75 million sign-on bonus
  • $11.3 million in restricted stock
  • $900k annual salary
  • $1.35 million in target bonus

In total, Activision/Blizzard executive salaries totalled more than $80 million in 2017, with Kotick’s salary alone reaching $28.6 million.

All of this when, at the same time, it was announced that the first casualities would be Seattle’s mobile studio, Z2Live. The studio will be shut down and all 78 employees let go. The studio became part of the portfolio when King originally acquired Z2Live in 2015 for $45 million, shortly before King was itself was acquired by Activision, Z2Live has contributed over $200 million in revenue.

Kotaku had further details on layoffs with specific studios and layoffs:

“People were laid off at Activision’s main office in Santa Monica, California, where an entire team of Destiny publishing staff had been coming to work with nothing to do. (Some of them were laid off; some were moved to Call of Duty or other teams. Some in other departments were also laid off.) People lost their jobs at King, the developer of Candy Crush, and at Activision’s various development studios including Vicarious Visions (Albany, NY) and High Moon Studios (San Diego, CA), both of which had handled support on Destiny 2. Activision Blizzard staff in Europe, Latin America, and other regions across the world also lost their jobs. Although the bulk of laid-off employees were support staff, some were in departments like art and design as well.”

Since the announcement on Tuesday, there has been much backlash from the industry, with some now looking for Kotick’s resignation including Game Workers Unity, a group focused on supporting game industry worker to organize unions. The group took to Twitter yesterday with the hashtag #FireBobbyKotick

Additionally, talks of unionizing the games industry are again heating up as the AFL-CIO published an article in Kotaku: An Open Letter To Game Developers From America’s Largest Labor Organization. The AFL-CIO is the largest federation of labor unions in the US and represents over 12 million workers from 50 different labor unions across the country, include the Writers Guild of America.

We do not expect this to be the end of this story as more details continue to unfold and become public. However, while investors may be content with the company’s direction, they cannot forsee what impact these actions will have within the industry in terms of hiring or with consumers, as both groups have voiced their disproval.