Activision Blizzard Inc. (ATVI - Get Report) shares tumbled Friday after the video game company famous for its 'Call of Duty' franchise said it would be splitting with design and development partner Bungie.
Bungie will take full control of the Destiny game franschise -- once the most successful of all time -- following the split, with Activision citing an inability to meet targets for return on investment on an earlier earnings conference call. Activision had paid royalties for Destiny, and partly subsidized its development, as part of a reported ten year contract.
"Bungie (will) assume full publishing rights and responsibilities for the Destiny franchise. Going forward, Bungie will own and develop the franchise," Activision said in a filing to the Securities and Exchange Commission late Thursday. "As a result, the Company does not expect to recognize material revenue, operating income or operating loss from the Destiny franchise in 2019."
Activision shares were down 10% to $46.19, extends its three-month slide beyond 36%.
"Realigning resources around more profitable titles as well as freeing up resources to focus on project development may be a smart move over the longer term," wrote BMO Capital Markets analyst Gerrick Johnson, who has a "market perform" rating on the stock with a $51.35 price target. "A focus on profitability in a year with limited new IP also seems prudent."
"However, we wonder if ATVI may be pulling the plug too soon on what, just a few years ago, seemed a crown jewel in the Activision Publishing portfolio," he added.
The split with Bungie marks the first major move under the company's new leadership team following the surprise departure of chief financial officer Spencer Neumann, who has since taken the same role at Netflix Inc. (NFLX - Get Report) , earlier this month and the appointment of Rob Kostich as the new president of Activision Publishing earlier this week.
Neumann was placed on leave on December 31 and ultimately terminated from the gaming group "for cause for violating his legal obligations to the Company." In a regulatory filing, Activision said the firing was unrelated to the company's financial reporting and controls; it was unclear if the move was related to Neumann's negotiations with Netflix.
Activision named Dennis Durkin as Neumann's CFO replacement shortly after, reprising a role he held at the company between 2012 and 2017.
"Microsoft has certainly been in the video game industry for a long time given its PC and Xbox business, the company has recently started to ramp up efforts in the space with initiatives such as Game Pass, a Netflix-like service for video games which was recently upgraded to include new game releases from Microsoft Studios," the team wrote at the time. "Then there is Amazon (AMZN - Get Report) , which in addition to owning the Twitch streaming service, has begun to make inroads and ramp up activity for its own game engine, Lumberyard, which is not only free but can also be integrated with Twitch and Amazon's AWS."