Macro Tsimmis

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Activision Blizzard (ATVI) update #10—4Q09 results beat old guidance; new guidance so-so

Posted by intelledgement on Wed, 10 Feb 10

Our game publishing company, Activision Blizzard (ATVI), announced 4Q09 results today that generally matched management’s guidance. The guidance had called for revenues of $1.33 billion and a loss of four cents per share in the quarter and the actual results included revenues of $1.56 billion and a loss of 23 cents per share including a 19-cent reduction in the valuation of intangible assets reflecting the impact of a weaker market on the casual and music genres…exclusive of that non-cash charge, the loss would have been four cents per share. For the full year, the company had revenues of $4.28 billion and earnings of nine cents per share including the 19-cent charge (28 cents/share excluding the charge) as compared with guidance of $4.05 billion and earnings of 26 cents per share.

CEO Bobby Kotick stated, “We generated approximately $1.2 billion in operating cash flow and ended the year with approximately $3.3 billion in cash and investments. For the calendar year, in the U.S. and Europe, Call of Duty: Modern Warfare 2 was the #1 best-selling title overall and DJ Hero was the highest grossing new IP launched in 2009. Additionally, through Blizzard Entertainment’s World of Warcraft we remain #1 in the subscription-based massively multiplayer online role-playing game category worldwide…. Despite these challenging times, in 2010 we remain focused on expanding operating margins by growing our high-margin digital/online revenues, directing our resources to the largest and most profitable opportunities and realizing operational efficiencies globally. On a non-GAAP basis, we expect to deliver a year of record net earnings and operating margins and are taking another step towards our long-term objective of operating margins of 30% or more. In calendar year 2010, we expect our net earnings and operating margin growth will be driven by our product slate that includes Blizzard Entertainment’s Starcraft II and the World of Warcraft expansion pack, Cataclysm, as well as a diversified lineup based on Activision Publishing’s best-selling franchises including Call of Duty, Guitar Hero and Tony Hawk, together with other well-known titles such as True Crime, Spider-Man, and Bakugan.”

Management also announced a fresh $1 billion worth of share buybacks—the $1.25 billion program initiated in 2008 (originally as $1 billion and subsequently enhanced) was completed during 4Q09 with 115 million shares of common stock purchased at an average price of $10.87—as well as the first dividend in company in company history: 15¢/share payable to shareholders of record on 22 February. This amounts to a 1.5% payout based on today’s close of $9.96; they plan to pay an annual dividend going forward. Guidance for 2010 calls for revenues of $4.2 billion—$1.1 of that in 1Q10—and 47¢/share of earnings (20¢ in 1Q010)…basically flat revenues with improved profitability.

Fourth quarter highlights included:

  • For 2009, an overall 16% market share in the U.S. and Europe, an increase of 1.8 points
  • For 2009, two of the top-five best-selling franchises on the consoles across all platforms in the U.S. and Europe: Call of Duty and Guitar Hero
  • For 2009, #1 U.S. publisher overall for the PlayStation® 3 computer entertainment system from Sony (SNE) and the Xbox 360™ video game system from Microsoft (MSFT) and the #1 third-party publisher for the Nintendo Wii™
  • For 2009, highest share point gain of any publisher in Europe from 11.9% to 13.9%
  • For 2009, Guitar Hero was a top-four franchise overall and the #1 music franchise in the U.S. and Europe
  • For 2009, highest grossing new intellectual property launched in 2009 in the U.S. and Europe: DJ Hero
  • For 2009, two of the top five best-selling PC titles in dollars in the U.S. and Europe: Call of Duty: Modern Warfare 2 and World of Warcraft: Wrath of the Lich King
  • For 4Q09, 20.1% market share across all platforms in the U.S. and Europe—up 1.7 points over 4Q08—and #1 publisher overall
  • For 4Q09, Call of Duty: Modern Warfare 2 was the #1 best-selling console title in dollars and the Call of Duty franchise was the #1 franchise overall in the U.S. and Europe
  • 20 October—Bakugan Battle Brawlers video game, licensed by Corus Entertainment Inc.’s (CJR’s) Nelvana and based on the top-rated television series and Spin Master’s best-selling toy, was released for Nintendo DS, the Wii, the Xbox 360, and the PlayStation(R)3 and PlayStation(R)2
  • 26 October—Guitar Hero became the first game to surpass a million fans on Facebook
  • 27 October—DJ Hero released
  • 3 November—Band Hero released
  • 10 November—Call of Duty: Modern Warfare 2 released; on 15 November, it became the first video game ever to surpass $550 million in retail sales in its first five days of release and the game has sold more than $1 billion in retail sales worldwide to date
  • 17 November—Tony Hawk: RIDE released featuring a skateboard controller
  • 14 December—A new open world True Crime game inspired by classic Hollywood and Asian cinema-style action thrillers announced to be released in 2010

In China, WoW operations are semi-suspended again, but this time it appears to be good news. Months of wrangling between the Ministry of Culture and the General Administration of Press and Publications (GAPP) have evidently yielded an agreement whereby Blizzard’s WoW licensee NetEase (NTES) submitted an application to the GAPP for the approval of The Burning Crusade, the first expansion released for WoW back in January 2007. This is consistent with the Ministry of Culture’s position that the GAPP has jurisdiction only over packaged software “publications,” and not changes to online games. Nevermind that The Burning Crusade was released in China by Blizzard’s previous licensee, The9 (NCTY), back in September 2007 and the GAPP did not raise any objection at that time, or anytime since…until mid-2009. The agreement calls for NetEase to suspend new registrations for a week starting 8 February, during which time WoW servers will remain active and players will be allowed three hour/day of free access; presumably the GAPP approval will be forthcoming at that point. No word yet on the oft-delayed Wrath of the Lich King expansion, which Chinese WoW players have been awaiting—excepting those who have “defected” to Taiwan-based servers—for 15 months now. Overall, as of 31 Dcember 2009, there are approximately 11.5 million WoW subscribers worldwide, according to Blizzard.

In 1Q10, one Activision Blizzard title is scheduled for release: How To Train Your Dragon, which is based on DreamWorks Animation’s (DWA’s) upcoming 3D movie. The game will be published for the PlayStation 3, Xbox 360, Nintendo Wii, and Nintendo DS.

Previous ATVI-related posts:

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